Fitch Assigns Vietnam's Military Bank 'B' Rating; Outlook Stable
Fitch Assigns Vietnam's Military Bank 'B' Rating; Outlook Stable
Fitch Ratings has assigned a Long-Term Issuer Default Rating (IDR) of 'B' to Vietnam-based Military Commercial Joint Stock Bank (MB Bank). The Outlook is Stable. The agency has also assigned a Viability Rating (VR) of 'b'. A full list of rating actions is at the end of this commentary.
MB Bank's IDRs are driven by its VR. The ratings reflect the bank's relatively strong financial profile and risk management compared to its local peers and its strong franchise as one of the largest private commercial banks in Vietnam. The ratings also incorporate the bank's above-industry-average loan growth and its high reliance on corporate deposits.
MB Bank's reported asset quality metrics reflect a more conservative loan classification methodology relative to its peers. At end-June 2014, MB Bank's reported NPL ratio of 3.11% was in accordance with Circular 2, a set of stricter rules on classifying bad debt implemented by the State Bank of Vietnam. The bank's loan book is also well-diversified across industries and highly collateralised. These credit strengths will help mitigate potential risks emanating from the bank's rapid loan growth. MB Bank, which is smaller compared with the four state-owned banks, targets to increase its asset by 1.5-2.0x faster than the industry average over the medium term.
Fitch expects MB Bank to maintain its capitalisation at around current levels as its rapid asset growth is likely to be supported by high internal capital generation ability and the issuance of new capital, if needed. Funding and liquidity have also generally been well managed with the loan-to-deposit ratio maintained below 70%, supported by strong deposit growth in recent years. In contrast to local peers, the bank relies highly on corporate deposits (63% of total deposits at end-June 2014), in part driven by MB Bank's capabilities in corporate banking services.
MB Bank's corporate deposits also include a higher share of deposits from state-owned enterprises relative to other private commercial banks. This and the high representation of the military on the bank's board of directors reflect the bank's military background. The bank also benefits from access to the branch network of Vietnam Military Telecommunication Group (Viettel), the bank's largest shareholder. Lower funding costs and less reliance on a retail branch network have helped support the bank's net interest margins and overall profitability, which are higher relative to its local peers.
The introduction of Circular 36, which prohibits a bank from holding more than 5% in another bank, is likely to force a change in shareholder structure in MB Bank by end-2015, though this is unlikely to significantly impact the bank's credit profile. MB Bank is currently 9.6% owned by Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank; B+/Stable) and 10% owned by Vietnam Maritime Commercial Joint Stock Bank (unrated). Fitch believes that MB Bank, as a listed company, is unlikely to face significant difficulties in finding new investors, considering its relatively strong credit profile in Vietnam.
Positive rating actions could arise from an improvement in capitalisation, sustainable loan book growth, and increased retail franchise while maintaining its financial performance. Upside rating potential may also arise from further improvements in the operating environment for the banking industry and a strengthened regulatory framework in Vietnam.
The ratings could be pressured if its loan quality deteriorates significantly more than what the current rating level entails, resulting in weakening capitalisation. A change in the relationship with Viettel, which results in a significant increase in funding and operating costs, will be negative for ratings. Negative rating actions might also result from event risks such as an aggressive takeover/merger, which might result in a significantly weaker financial profile.
