S&P Global Ratings assigns Shinhan Bank Vietnam BB/B ratings; outlook stable
S&P Global Ratings on January 15 assigned its BB long-term and B short-term issuer credit ratings to Shinhan Bank Vietnam (SHBVN). The outlook on the long-term rating is stable.
SHBVN is a Vietnam-based bank affiliate of Shinhan Financial Group Co., Ltd (SFG), the credit ratings agency said in a statement.
“The ratings on SHBVN reflect our view that the bank will remain integral to SFG’s overseas business expansion strategy. We view SHBVN as a highly strategic subsidiary of the group and believe SFG has the capacity and willingness to support SHBVN in almost all circumstances,” stated S&P Global Ratings.
The ratings on SHBVN are constrained by the sovereign credit ratings on Vietnam (BB/Stable/B). If the ratings were not constrained, the issuer credit rating would be one notch lower than the group credit profile of a+.
SHBVN plays an integral role in the group’s business expansion in Southeast Asia. Vietnam is a key growth market for the group, given that various Korean corporations are expanding their production base and operations in the country.
Against this backdrop, SHBVN has steadily grown its business and become one of the largest foreign banks by assets in Vietnam as of September 30, 2019.
The bank leads the group’s expansion strategy in Vietnam by coordinating with other nonbanking affiliates in the country across consumer finance, brokerage and life insurance to increase cross-selling opportunities.
SHBVN is the largest overseas earnings contributor for Shinhan Bank, the parent bank of SHBVN and the primary operating entity within SFG.
Shinhan Bank generated some 14% of its total net income from overseas business during January-September 2019; SHBVN contributed roughly one-third of this figure.
SHBVN’s average return on average assets has been some 2% over the past five years, higher than the average of its rated Vietnamese bank peers at roughly 10%.
“We believe SFG has a strong and long-term commitment to SHBVN. SHBVN has strengthened the group’s presence in Vietnam through organic and inorganic business growth,” reported S&P Global Ratings.
In 2011, SHBVN fully acquired and merged with Shinhan Vina Bank Ltd, which was a 50% joint venture with the Bank for Foreign Trade of Vietnam. It also bought ANZ Bank (Vietnam) Ltd’s retail business in 2017.
“We expect SHBVN to gradually expand its retail business to maintain the balance between the corporate and retail segments in its loan portfolio,” remarked the agency.
In addition to those customers who are employees of Korean-based corporate subsidiaries in Vietnam, the bank aims to grow its local retail customer base.
“The group will likely remain supportive of the bank’s capitalization. We anticipate that SHBVN is unlikely to pay dividends to the group in the coming years to support its business growth in Vietnam. The bank has not paid any dividends over the past decade,” noted the agency.
In S&P Global Ratings’ view, the extent of extraordinary group support to SHBVN may be somewhat weaker than that for other rated subsidiaries that the agency considers core to the group, such as Shinhan Card Co., Ltd (A-/Stable/A-2) and Shinhan Investment Corp. (A-/Stable/A-2).
The agency explained that SHBVN’s size relative to the group remains small. As of late September last year, the bank represented only some 2% of shareholders’ equity and roughly 1% of the total assets of SFG.
In addition, the agency does not view SHBVN’s operations and administration as fully integrated with the parent. SHBVN’s capital management system is less rigorous, in their opinion, compared with the parent bank in Korea, which is under Basel III jurisdiction. SHBVN adopted Basel II standards in October 1, 2019.
The stable outlook on SHBVN reflects the outlook on Vietnam. The ratings on SHBVN remain constrained by the creditworthiness of Vietnam. In addition, the agency believes that SHBVN will maintain its high strategic importance to SFG over the next 18-24 months.