Moody's affirms VietinBank's ratings; notes positive momentum in its standalone credit profile

Jan 16th at 16:39

16-01-2013 16:39:12+07:00

Moody's Investors Service has affirmed the debt and deposit ratings of Vietnam Bank for Industry and Trade (VietinBank) and their stable outlook. More specifically, Moody's has affirmed VietinBank's:

- long-term/short-term foreign currency and local currency issuer ratings of B2/Not Prime;

- long-term/short-term local currency deposit ratings of B2/Not Prime;

- long-term/short-term foreign currency deposit ratings of B3/Not Prime; and

- foreign currency senior unsecured rating of B2.

At the same time, Moody's has indicated that VietinBank's standalone bank financial strength rating (BFSR) of E, which maps to a baseline credit assessment (BCA) of caa1 on the long-term ratings scale, would likely be positively affected by the completion of a share issuance transaction underway with the Bank of Tokyo Mitsubishi UFJ's (BTMU, Aa3 stable; C/a3 stable). As a result, VietinBank's BFSR was put under review for upgrade.

Ratings rationale

Moody's rating affirmation follows the announcement made on 28 December 2012 that the State Bank of Vietnam, the country's central bank, had approved BTMU's proposal to buy almost 20% new shares issued by VietinBank for VND15.5 trillion (USD743 million).

The transaction will result in a substantial increase in VietinBank's capital ratio, to approximately 17% from 11.15% as of June 2012, if the bank keeps the proceeds.

A substantial capital increase of this magnitude will not address the fundamental weaknesses that characterize the Vietnamese banking system -- such as asset quality pressure arising from a difficult operating environment, weak accounting, the lack of transparency, and weak governance frameworks. However, VietinBank could become -- among Moody's-rated Vietnamese banks -- the institution with the highest capitalization by a significant margin, thereby materially distancing it from the risk of insolvency on a comparative basis.

Moody's expects to make a decision on a possible upward movement in VietinBank's BFSR and BCA after the completion of the transaction and the confirmation that the funds raised have boosted the bank's capitalization to the extent anticipated. The bank has indicated that it expects to receive the cash injection by the end of March 2013.

The principal methodology used in this rating was Moody's Consolidated Global Bank Rating Methodology published in June 2012. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Headquartered in Hanoi, VietinBank reported total assets of VND443.0 trillion ($21.26 billion) at end-September 2012.

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