Moody's affirms ratings of eight banks, upgrades VP Bank's ratings

The credit agency also revised outlooks for local currency deposits and local and foreign currency issuer ratings of the institutions from stable to positive. The banks are Vietcombank, Vietinbank, BIDV, An Binh Bank, ACB, Military Bank, VIB and Techcombank.

The baseline credit assessments (BCA), adjusted BCAs, and counterparty risk assessment assigned to the eight banks are unaffected by the rating actions.

The rating actions for the eight Vietnamese banks were driven by Moody’s affirmation on April 28 of Vietnam’s B1 sovereign rating and the change in the country’s rating outlook to positive from stable on the same day, reflecting Moody’s expectations over the government’s potentially higher capacity to provide such support to the banks. 

The positive outlook on the Vietnamese Government’s rating, according to Moody’s, is due to strong foreign direct investment inflows, fostered by ongoing economic reform, which will continue diversifying the economy and enhancing economic performance when compared to its rating peers.

Moody’s expects the macro-economic and external stability of Vietnam to be maintained, and the resulting strong growth and stable macro-economic environment will help stabilize government debt around current levels.

The B2 foreign currency deposit ratings of the eight Vietnamese banks were affirmed with stable outlooks due to being constrained by the B2 foreign currency deposit ceiling for Vietnam.

Moody’s noted that if the B1 rating on the Vietnamese Government is upgraded, it will likely upgrade the long-term ratings of the eight Vietnamese banks by incorporating additional notches of public support uplift.

Conversely, the long-term ratings of the eight banks could be downgraded if there is a severe deterioration in their credit fundamentals and/or if Moody’s assesses that government support for the banks has weakened.

VP Bank - ratings upgraded, outlook stable

In another assessment on May 3, Moody’s upgraded the long-term deposit and issuer ratings of VP Bank to B2 from B3 while at the same time upgrading its BCA and adjusted BCA to b3 from caa1. The bank’s outlook in long-term ratings remains stable.

According to Moody’s, the upgrade of the BCA and adjusted BCA to b3 from caa1 was driven by improvements in VP Bank’s profitability metrics, with pre-provision income growth of 62% in 2016 and 146% in 2015. 

The strong core revenue growth is attributed to the bank’s growth and its leading market share in the high margin consumer finance business.

The credit agency also stated that VP Bank’s return on assets has outperformed that of its domestic peers, standing at 1.7% in 2016 against 1.2% in 2015, compared to an average of 0.7% at the other 14 Moody’s-rated banks in Vietnam (B1 positive).

The bank’s tangible common equity (TCE) to adjusted risk-weighted assets (RWA) improved to 8.5% at end-2016 from 7.8% at end-2015. 

The improvement was on the back of higher retained earnings against a more moderate year-on-year loan growth rate of 24% in 2016 compared to growth rates that averaged 47% during 2013-2015.

On balance, the b3 BCA also captures VP Bank’s weak asset quality metrics, because the bank operates in a high-risk credit segment. Around 11% of its adjusted gross loans were problematic at end-2016, slightly improved from 12% at end-2015, according to Moody’s.

While problem loans still account for a large proportion of total assets, the bank has made gradual progress in improvements in bad debt collection, recovery of Vietnam Asset Management Company (VAMC) bonds, and in writing off some of its problem exposures.

Moody’s continues to incorporate a moderate probability of government support into VP Bank’s B2 deposit and issuer ratings, resulting in a one-notch uplift from the bank’s b3 BCA.

Headquartered in Hanoi, VP Bank’s assets totaled VND228.77 trillion (US$10.1 billion) at end-2016.