March 30, 2017 / 10:36 AM / 4 months ago

Fitch Affirms Five Vietnamese Banks' Ratings; Outlook Stable

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(The following statement was released by the rating agency) SINGAPORE, March 30 (Fitch) Fitch Ratings has affirmed the Long-Term Issuer Default Ratings (IDRs) on five Vietnamese banks as follows: - Vietnam Bank for Agriculture and Rural Development (Agribank), Vietnam Joint Stock Commercial Bank for Industry and Trade (Vietinbank) and Joint Stock Commercial Bank For Foreign Trade of Vietnam's (Vietcombank) affirmed at 'B+'. - Asia Commercial Joint Stock Bank (ACB) and Military Commercial Joint Stock Bank (Military Bank) affirmed at 'B'. The Outlook on all five banks is Stable. A full list of the ratings is at the end of this commentary. The affirmations reflect Fitch's view that banking sector performance will remain stable with support from continued strong economic growth. We believe pressure on asset quality and capital from rapid loan growth will be offset by benign operating conditions, earnings retention and periodic capital funding. Problem loans remain understated in our view. There is a risk that current rapid credit growth may be a source of future asset quality problems, despite strong economic growth lowering the drag of legacy problem loans. We expect profitability headwinds to continue due to margin compression and high impairment charges; however, these are mitigated by continued strong growth in higher-margin retail loans. Fitch expects system funding and liquidity to remain steady. However, bank profits, asset quality and liquidity could be affected if rising US interest rates lead to renewed depreciation in the Vietnamese dong and an increase in dollarisation. KEY RATING DRIVERS IDRS, SENIOR DEBT, SUPPORT RATINGS AND SUPPORT RATING FLOORS OF AGRIBANK, VIETINBANK AND VIETCOMBANK The Long-Term IDRs of Agribank, Vietinbank and Vietcombank are driven by Fitch's expectation that government support will be forthcoming, if needed, as the entities are systemically important and majority-owned by the Vietnamese government. They are among the top-four Vietnamese banks by assets and have strong domestic franchises. The banks' IDRs and Support Rating Floors are one notch lower than Vietnam's sovereign rating (BB-/Stable). Fitch believes the large size of the banking industry relative to GDP and the government's weak finances may constrain the timeliness of support. Vietinbank's senior debt rating is at the same level as its Long-Term IDR, reflecting Fitch's view of average recovery prospects for unsecured senior creditors in case of default. The Recovery Rating of 'RR4' indicates typical historical recovery prospects of 31%-50%. The Stable Outlooks on Agribank, Vietinbank and Vietcombank reflect the Stable Outlook on Vietnam's sovereign rating. VIABILITY RATINGS OF VIETINBANK AND VIETCOMBANK The Viability Ratings of Vietinbank and Vietcombank reflect their limited balance sheet buffers relative to the size of their problematic assets, weak financial performance and high loan concentration risk, especially in state-owned enterprises (SOEs). The Viability Ratings also incorporate their strong domestic franchises, which focus on commercial and corporate lending, and their stable funding profiles. Fitch believes these two state-owned banks have an advantage over private banks in times of stress, as depositors are likely to have more confidence in a majority state-owned bank. The loan/deposit ratios of Vietinbank and Vietcombank stood at 103% and 80%, respectively, as at end-June 2016. Fitch does not assign a Viability Rating to wholly government-owned Agribank. Providing support to the domestic economy has a high influence on its standalone profile and makes it likely that it will continue to benefit from regulatory forbearance. IDRS AND VIABILITY RATINGS OF ACB AND MILITARY BANK The Long-Term IDRs of ACB and Military Bank are driven by their Viability Ratings and reflect their smaller franchises but better loan quality compared with state-owned banks. Fitch believes the capital encumbrance of ACB and Military Bank from under-reporting of non-performing loans is lower compared with state-owned banks. ACB's ratings reflect its stable credit profile. Its loan quality is likely to be better than most of its peers given its much lower loan concentration risk with small exposure to SOEs; 1.1% of total loans at end-2016. The reported non-performing loan ratio was 0.9% at end-2016 (2015: 1.7%). Military Bank's ratings reflect its franchise as one of Vietnam's largest private banks. Fitch expects the bank to continue generating stronger profitability than peers, supported by its higher net-interest margins and more favourable cost structure. Fitch expects its capitalisation ratio of 13.4% at end-September 2016 to stay above the majority of its local peers, notwithstanding the bank's above-industry loan growth. Our assessment also captures the bank's adequate liquidity profile - with a loan/deposit ratio of 73% at end-June 2016 - and its strong government ties. The Stable Outlooks on ACB and Military Bank reflect Fitch's expectation that their risk profiles will be maintained over the near- to medium-term amid macroeconomic stability in Vietnam. SUPPORT RATINGS AND SUPPORT RATING FLOORS OF ACB AND MILITARY BANK The Support Ratings of '5' and Support Rating Floors of 'No Floor' of ACB and Military Bank reflect Fitch's view that state support may be possible but cannot be relied upon. RATING SENSITIVITIES IDRS, SUPPORT RATINGS AND SUPPORT RATING FLOORS OF AGRIBANK, VIETINBANK, VIETCOMBANK, ACB AND MILITARY BANK The Long-Term IDRs, Support Ratings and Support Rating Floors of Agribank, Vietinbank and Vietcombank are sensitive to shifts in the sovereign's creditworthiness and ratings. These ratings may also be affected by any perceived change in the government's propensity to support the banks, although such a scenario is unlikely in the near term for systemically important state-owned banks like Agribank, Vietinbank and Vietcombank. An upgrade of the Support Ratings and Support Rating Floors for ACB and Military Bank is sensitive to our expectations around the sovereign's ability and propensity to support the banks. The Long-Term IDRs of ACB and Military Bank are sensitive to changes in their Viability Ratings. SENIOR UNSECURED NOTES The ratings on Vietinbank's senior unsecured notes are sensitive to any changes in the bank's Long-Term IDR and Fitch's assessment of recovery prospects. VIABILITY RATINGS OF VIETINBANK, VIETCOMBANK, ACB AND MILITARY BANK We may consider upgrading the Viability Ratings of the Vietnamese banks if structural issues, such as bad-debt resolution and weak capital buffers, are more adequately addressed, leading to greater transparency and, together with sustained strong economic performance, to continued improvements in the banks' overall financial profiles. Viability Ratings may be pressured if excessive growth leads to significant impairment risks and weakened balance sheets. Downward pressure for Vietinbank may be higher given its low and declining capital ratio and higher loan concentration risk with SOE exposure. The full list of rating actions is as follows: Agribank Long-Term IDR affirmed at 'B+'; Outlook Stable Short-Term IDR affirmed at 'B' Support Rating Floor affirmed at 'B+' Support Rating affirmed at '4' Vietinbank Long-Term IDR affirmed at 'B+'; Outlook Stable Short-Term IDR affirmed at 'B' Viability Rating affirmed at 'b-' Support Rating Floor affirmed at 'B+' Support Rating affirmed at '4' USD250 million 8% notes due 2017 affirmed at 'B+'; Recovery Rating of 'RR4' Vietcombank Long-Term IDR affirmed at 'B+', Outlook Stable Short-Term IDR affirmed at 'B' Viability Rating affirmed at 'b-' Support Rating Floor affirmed at 'B+' Support Rating affirmed at '4' Military Bank Long-Term IDR affirmed at 'B'; Outlook Stable Short-Term IDR affirmed at 'B' Viability Rating affirmed at 'b' Support Rating Floor affirmed at 'No Floor' Support Rating affirmed at '5' ACB Long-Term IDR affirmed at 'B'; Outlook Stable Short-Term IDR affirmed at 'B' Viability Rating affirmed at 'b' Support Rating Floor affirmed at 'No Floor' Support Rating affirmed at '5' Contacts: Primary Analyst Wee Siang Ng Senior Director +65 6796 7230 Fitch Ratings Singapore Pte Ltd. 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