Fitch Affirms 4 Vietnamese Banks at 'B'; Revises Outlook of ACB

Fitch Affirms 4 Vietnamese Banks at 'B'; Revises Outlook of ACB

Fitch Ratings has affirmed four Vietnamese banks' Long-Term Issuer Default Ratings (IDRs) at 'B'. The Outlook is Positive for Vietnam Bank for Agriculture and Rural Development (Agribank) and Vietnam Joint Stock Commercial Bank for Industry and Trade (Vietinbank). Fitch has also withdrawn the Viability Rating (VR) on Agribank.

The Outlook for Asia Commercial Bank (Vietnam) (ACB) has been revised to Stable from Negative. The Outlook is Stable for Saigon Thuong Tin Commercial Joint Stock Bank (Sacombank). The ratings of Sacombank are simultaneously withdrawn as they are no longer considered relevant to the agency's rating coverage. Fitch will no longer provide ratings or analytical coverage for the company following the withdrawal. A full list of rating actions is provided at the end of this rating action commentary.

KEY RATING DRIVERS - IDRs, Senior Debt, Support Ratings (SRs) and Support Rating Floors (SRFs) of Agribank and Vietinbank

The Long-Term IDRs of the two state-owned banks, Agribank and Vietinbank, are driven by state support. Their SRs and SRFs reflect Fitch's expectation of likely extraordinary state support as both banks are majority owned by the government and among those most systemically important to the domestic economy. Nonetheless, timeliness of extraordinary support from the government may be limited by its own finances as reflected in the 'B+' sovereign rating. As a result, the banks' ratings are one notch lower than the sovereign rating.

Vietinbank's senior notes are rated at the same level as its Long-Term IDR, given that the notes constitute direct, unsubordinated and senior unsecured obligations of the bank, and rank equally with all its other unsecured and unsubordinated obligations. The Recovery Rating on the notes is affirmed at 'RR4'. Fitch assigns Recovery Ratings to issues from entities with IDR of 'B+' or below.

The Positive Outlooks on Agribank and Vietinbank reflect the Positive Outlook on Vietnam's sovereign ratings.

KEY RATING DRIVERS - VRs of Agribank and Vietinbank

Agribank's VR of 'ccc' reflects Fitch's view that the bank's buffers may not be sufficient to absorb loan losses considering its very weak loan quality, thin net profitability and weak capitalisation. The bank's capitalisation will be even weaker if it is adjusted for 'true' asset quality or prudent level of provision according to the international standards.

Simultaneously, Agribank's VR has been withdrawn given that the bank has a government policy function in the agriculture industry and insufficient information was provided, which implies that the bank's transparency has worsened. In addition, Agribank, unlike other state-owned banks, is unlikely in the near to medium term to sell a stake to private (usually foreign) investors, a process known as equitisation in Vietnam.

Vietinbank's VR reflects its weak credit matrix, including continued weakness in its true loan quality, a loan book that is concentrated in SOEs and declining profitability. Meanwhile, its improved capitalisation thanks to equitisation may support its loss-absorption buffer to some extent. Fitch does not expect the financial profile of Vietnamese banks to improve in the near term, given that the government's restructuring of the banking and SOE sector is still in progress and any improvements would take a while to be reflected in the banks' performances.

KEY RATING DRIVERS - IDRs, VRs, SRs and SRFs of ACB and Sacombank

The Long-Term IDRs of ACB and Sacombank are driven by their VRs. The ratings reflect their reasonable standalone credit profiles and risk exposures, including loans to state-owned entities. However, they are constrained by the negative banking industry outlook due to the lingering loan quality risks and declining profitability. Sacombank's ratings do not take into account its plan to acquire Southern Bank, given that the transaction has not been confirmed.

ACB's Outlook has been revised to Stable from Negative, reflecting Fitch's view that downward pressures on the bank's financial profile have reduced, including significant impairment risks arising from the bank's exposure to companies related to one of ACB's shareholders, Mr. Nguyen Duc Kien. The bank has made efforts and will continue to resolve these problems. Profits increased slightly in 2013 as the bank consolidated its balance sheet and streamlined operations to cut costs. Deposits grew by 10% from a year ago. ACB has also been disciplined in maintaining a liquid balance sheet with loans/deposits ratio of 78%.

The '5' SRs and 'No Floor' SRFs of ACB and Sacombank reflect Fitch's view that state support may be possible but cannot be relied upon.

RATING SENSITIVITIES - IDRs, SRs and SRFs of Agribank, Vietinbank, ACB and Sacombank

The SRs and SRFs are sensitive to shifts in the sovereign's creditworthiness and ratings, which at present have a Positive Outlook.

These ratings may be hurt by any perceived weakening in the government's propensity to support the banks, although such prospect is remote for the systemically important state-owned banks, including Agribank and Vietinbank. In contrast, ACB's SR and SRF are already at the lowest end of the ratings scale.

Rating sensitivities for Sacombank are no longer relevant given the rating has been withdrawn.

RATING SENSITIVITIES - VRs of Agribank, Vietinbank, ACB and Sacombank

Vietnamese banks' VRs might be pressured if asset quality risks become bigger threats to banks' capitalisation than the current ratings factor in. Negative rating action may also result from increasing risk appetite, which may be demonstrated in excessive asset growth, or event risks such as M&A or operational lapses that could affect the banks' credit profile.

VRs may be upgraded if the restructuring process in the banking industry (including increased transparency and bad debt resolution) and SOE sector along with sustainable asset quality improvement bring noticeable improvements in banks' financial performance. However, such improvements are unlikely in the near term.

Rating sensitivities for Agribank and Sacombank are no longer relevant given their ratings have been withdrawn.

The full list of rating actions follows:

Agribank
- Long-Term IDR affirmed at 'B'; Outlook Positive
- Short-Term IDR affirmed at 'B'
- Viability Rating affirmed at 'ccc' and withdrawn
- Support Rating Floor affirmed at 'B'
- Support Rating affirmed at '4'

Vietinbank
- Long-Term IDR affirmed at 'B'; Outlook Positive
- Short-Term IDR affirmed at 'B'
- Viability Rating affirmed at 'b-'
- Support Rating Floor affirmed at 'B'
- Support Rating affirmed at '4'
- USD250m 8% notes due 2017 affirmed at 'B'; Recovery Rating affirmed at 'RR4'

ACB
- Long-Term IDR affirmed at 'B'; Outlook revised to Stable from Negative
- Short-Term IDR affirmed at 'B'
- Viability Rating affirmed at 'b'
- Support Rating Floor affirmed at 'No Floor'
- Support Rating affirmed at '5'

Sacombank
- Long-Term IDR affirmed at 'B' and withdrawn; Outlook Stable
- Short-Term IDR affirmed at 'B' and withdrawn
- Viability Rating affirmed at 'b' and withdrawn
- Support Rating Floor affirmed at 'No Floor' and withdrawn
- Support Rating affirmed at '5' and withdrawn

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