Moody’s has upgraded the long-term local and foreign- currency bank deposit and issuer ratings of Vietnam International Bank (VIB). All other ratings were affirmed.
Moody’s has also changed the outlook for the local currency deposit and local and foreign currency issuer ratings of VIB to stable from positive.
The rating actions follow Moody’s upgrade of Vietnam’s sovereign rating to Ba3 from B1, and change in the outlook for the sovereign’s rating to stable from positive on 10 August 2018. For more information on the sovereign credit rating action, please refer to the Government of Vietnam issuer page on www.moodys.com.
The baseline credit assessment (BCA) and adjusted BCA assigned to VIB are unaffected by today’s rating actions.
RATINGS RATIONALE
Today’s rating actions on VIB are driven by Moody’s upgrade of Vietnam’s sovereign rating to Ba3 from B1.
Vietnam’s sovereign credit strength is a key input in Moody’s deposit and issuer ratings for the bank, because the country’s credit strength affects Moody’s assessment of the government’s capacity to provide support to the bank in times of stress.
The upgrade in Vietnam’s sovereign rating to Ba3 is underpinned by strong trends in growth, underway for the past decade, that are well-supported by a robust external sector and favorable consumption trends. This in turn has supported a stabilization in debt levels. The upgrade also reflects improvements in the health of the banking sector, albeit from relatively weak levels.
Following the upgrade of Vietnam’s sovereign rating, the foreign currency deposit ceiling is raised to B1 from B2, driving the upgrade of the long-term foreign-currency deposit rating of VIB.
UPGRADE OF VIETNAM GOVERNMENT’S RATING LED TO A WIDENING OF GOVERNMENT SUPPORT NOTCHING
Moody’s factors in the assumption of a “Moderate” probability of government support in times of need into the ratings of VIB.
Moody’s government support assumption is driven by the relative systemic importance of VIB to the Vietnamese banking system.
In light of the support assumption, the upgrade of the sovereign rating led to a one-notch widening of government support uplift to VIB’s long-term local-currency bank deposit and local and foreign-currency issuer ratings.
WHAT COULD MOVE THE RATINGS UP
The long-term ratings of VIB could be upgraded if both these two conditions are met: (1) the sovereign rating of Vietnam is upgraded, and (2) the bank posts improved stand-alone credit metrics that lead to a higher BCA.
The BCA of VIB could also be upgraded if the macroeconomic and operating conditions in Vietnam improve, leading to a higher Macro Profile for the country.
WHAT COULD MOVE THE RATINGS DOWN
The long-term ratings of VIB could be downgraded if the sovereign rating of Vietnam is downgraded, and/or if the bank’s BCA is downgraded due to a significant deterioration in its financial fundamentals. If all other rating factors are constant, the BCA would come under adverse pressure if the bank reports significantly increased problem loan ratio or significantly reduced capitalization. A material deterioration in funding and liquidity could also be negative for the ratings.
As of June 30, 2018, VIB’s total asset has reached VND127,238 billion, up 3.4% year-to-date. In the first half of the year 2018, the bank’s lending increased by 9.3 to VND87,283 billion; deposits grew 10.2% to VND75,331 billion. In 1H 2018, VIB tripled its pre-tax profit from a year earlier to VND1.151 billion, equivalent to 57% of its 2018 target.