Moody's places ratings of SHB on review for possible downgrade
Moody's places ratings of SHB on review for possible downgrade
Decision follows the bank's shareholders' approval to merge with Habubank
Moody's Investors Service has today placed the B2 deposit and issuer ratings of Saigon-Hanoi Commercial Joint Stock Bank (SHB) on review for possible downgrade. The bank's standalone bank financial strength rating (BFSR) of E+, which maps to a baseline credit assessment of b2, was also placed on review for possible downgrade.
RATINGS RATIONALE
Moody's decision to place SHB's ratings on review for possible downgrade follows the bank's announcement, on 5 May 2012, that its shareholders approved the bank's plan to merge with Hanoi Building Commercial Joint Stock Bank (Habubank: not rated). Habubank's shareholders had already approved the transaction on 28 April. The Vietnamese regulator, the State Bank of Vietnam, had also indicated that it was supportive of the agreement.
Moody's said that the review was warranted principally by the weak credit profile of Habubank and the materiality of the transaction relative to SHB's , creating downward pressure on the credit quality of the bank and, ultimately, on the merged entity compared to the relatively healthier profile of SHB pre-merger.
SHB's reported non-performing loan (NPL) ratio was 2.2% at end-2011, while Habubank's NPL ratio was 4.4% at the same year-end. In addition, if loans to the troubled Vietnam Shipbuilding Industry Group ("Vinashin") were included, Habubank's NPL ratio would be 16.7%. Similarly, the liquidity ratio of Habubank is substantially weaker than that of SHB, with a gross customer loans-to- gross customer deposits ratio of 120% at end-2011 for Habubank, compared with that of 84% for SHB at year-end.
Besides the distressed credit profile of the entity with which it is planning to merge, we anticipate that SHB's management will be challenged by the magnitude of the transaction and the limited synergies. Habubank is equivalent to no less than 58% of SHB's total assets. In addition, it has a limited distribution network, restricting cross-selling opportunities in the short term.
The review of SHB' ratings will evaluate the financial impact of this relatively large transaction on the bank's creditworthiness. Among other factors, we will review in detail how the transaction is funded and how the merged entity intends to manage provisions for its NPLs going forward. We view SHB as having limited earnings capacity, and we also understand that the significant exposures of Habubank to Vinashin have not been fully provisioned for (by international standards). Any government support to manage the merged entity's exposure to the Vinashin risk will also be taken into account.
Overall, our assessment will take into account the extent to which the bank's management can reasonably be expected to increase provisions and improve liquidity while maintaining profitability and capital ratios at their current levels.
moody's
