Moody’s Investors Service has today assigned Counterparty Risk Ratings (CRRs) to 16 rated banks in Vietnam.
The banks affected are: 1) An Binh Commercial Joint Stock Bank (ABB), 2) Asia Commercial Bank (ACB), 3) Ho Chi Minh City Development Joint Stock Commercial Bank (HDBank), 4) JSC Bank for Foreign Trade of Vietnam (Vietcombank), 5) Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV), 6) Lien Viet Post Joint Stock Commercial Bank (Lien Viet), 7) Military Commercial Joint Stock Bank (Military Bank), 8) Orient Commercial Joint Stock Bank (OCB), 9) Saigon – Hanoi Commercial Joint Stock Bank (SHB), 10) Saigon Thuong Tin Commercial Joint-Stock Bank (Sacombank), 11) Tien Phong Commercial Joint Stock Bank (TPBank), 12) Vietnam International Bank (VIB), 13) Vietnam Joint-Stock Commercial Bank for Industry and Trade (VietinBank), 14) Vietnam Maritime Commercial Joint Stock Bank (MSB), 15) Vietnam Prosperity Joint Stock Commercial Bank (VP Bank), and 16) Vietnam Technological and Commercial Joint Stock Bank (Techcombank).
Moody’s Counterparty Risk Ratings are opinions of the ability of entities to honour the uncollateralized portion of non-debt counterparty financial liabilities (CRR liabilities) and also reflect the expected financial losses in the event such liabilities are not honoured. CRR liabilities typically relate to transactions with unrelated parties.
Examples of CRR liabilities include the uncollateralized portion of payables arising from derivatives transactions and the uncollateralized portion of liabilities under sale and repurchase agreements. CRRs are not applicable to funding commitments or other obligations associated with covered bonds, letters of credit, guarantees, servicer and trustee obligations, and other similar obligations that arise from a bank performing its essential operating functions.
RATINGS RATIONALE
The CRRs assigned to the 16 rated Vietnamese banks are in line with the Counterparty Risk Assessments (CRA) already assigned.
Because Moody’s considers Vietnam not to have an operational resolution regime, in assigning CRRs to the Vietnamese banks subject to this rating action, the rating agency applies its basic Loss Given Failure (LGF) approach. Moody’s basic LGF analysis positions CRRs in line with the banks’ CRAs, one notch above their adjusted BCAs, prior to government support.
Furthermore, the CRRs also incorporate between zero and one notch of uplift due to Moody’s assessment of government support for the 16 banks in times of need, based on the banks’ systemic importance to Vietnam. The uplifts are in line with that applied to the CRAs.
OUTLOOK
CRRs do not carry outlooks.
FACTORS THAT COULD LEAD TO AN UPGRADE/DOWNGRADE
ABB – WHAT COULD CHANGE THE RATING UP
Substantial improvements in asset quality and core capital metrics will be positive for the BCA. If the sovereign rating of Vietnam is upgraded, Moody’s will consider upgrading the long-term ratings of the bank by possibly incorporating some government support uplift in the ratings.
ABB – WHAT COULD CHANGE THE RATING DOWN
The ratings could be downgraded, if the bank’s asset quality deteriorates such that credit losses almost fully deplete its loss absorbing buffers. A significant deterioration in its liquidity metrics could also be negative for the ratings.
A large appetite for credit growth — in particular, if the growth is at levels materially higher than the system average — could translate into downward rating actions, or a change in the ratings outlook.
ACB – WHAT COULD CHANGE THE RATING UP
Moody’s will consider upgrading the long-term ratings of ACB if (1) Vietnam’s sovereign rating is upgraded and (2) the bank posts improved standalone credit metrics that lead to a higher BCA.
Moody’s could upgrade ACB’s BCA if the macroeconomic and operating conditions for banks in Vietnam improve, leading to a higher Macro Profile for the country.
ACB – WHAT COULD CHANGE THE RATING DOWN
Moody’s could downgrade ACB’s BCA and ratings if (1) the bank demonstrates a material deterioration in its capital adequacy, or (2) the operating environment deteriorates significantly, against the backdrop of a loosening in the bank’s underwriting practices, thereby exposing it to asset-quality risks.
HDBANK – WHAT COULD CHANGE THE RATING UP
Moody’s will consider raising HDBank’s BCA if the bank’s problem loan ratio falls below 4% and its ratio of tangible common equity to adjusted risk-weighted assets, or the TCE ratio, exceeds 10%.
An upgrade of the Macro Profile of Vietnam’s banking system, which is currently Weak, would also prove to be positive for HDBank’s BCA.
The long-term ratings could be upgraded if the bank’s BCA is raised or Vietnam’s sovereign rating is upgraded.
HDBANK – WHAT COULD CHANGE THE RATING DOWN
The ratings could be downgraded if HDBank’s (1) problem loan ratio rises above 10%, or (2) TCE ratio drops significantly. The ratings are also sensitive to a significant weakening in the bank’s liquidity profile.
The ratings could be downgraded if the government’s rating is lowered or if Vietnam’s Macro Profile is revised downward.
VIETCOMBANK – WHAT COULD CHANGE THE RATING UP
Vietcombank’s long-term ratings could be upgraded if Vietnam’s sovereign rating is upgraded.
VIETCOMBANK – WHAT COULD CHANGE THE RATING DOWN
Downward pressure on the BCA could develop as a result of (1) a sharp deterioration in the bank’s asset quality, and (2) credit growth that significantly lowers its capital levels.
Weaker links with the government, such as a material decrease in the State Bank of Vietnam’s ownership stake in the bank, could place downward pressure on the ratings.
BIDV – WHAT COULD CHANGE THE RATING UP
If the B1 rating on the Vietnam government is upgraded, Moody’s will likely upgrade the long-term ratings of BIDV, by incorporating additional notches of government support uplift.
The following factors could result in an upward revision of BIDV’s BCA: (1) material improvements in asset quality and core capital levels, and (2) significantly lower credit risk concentration to individual borrowers and industry groups.
BIDV – WHAT COULD CHANGE THE RATING DOWN
BIDV’s BCA and, consequently, its ratings could be downgraded if (1) the operating environment weakens significantly or underwriting practices become loose, resulting in a considerable deterioration in the bank’s asset quality; (2) there is a significant deterioration in capitalization; or (3) we assess that government support for BIDV has weakened.
LIEN VIET – WHAT COULD CHANGE THE RATING UP
Lien Viet’s long-term ratings could be upgraded if Vietnam’s sovereign rating is upgraded.
The bank’s BCA and long-term ratings could be upgraded if its adjusted problem loan ratio declines to below 4% and its TCE ratio exceeds 10%.
Loan diversification away from real estate and construction loans would also be positive for the bank’s BCA.
LIEN VIET – WHAT COULD CHANGE THE RATING DOWN
Lien Viet’s long-term ratings could be downgraded if the bank’s adjusted problem loan ratio rises above 7% of its gross loans or if its return on tangible assets drops below 0.7%.
The ratings are also sensitive to a significant weakening in the bank’s funding or liquidity profile.
MILITARY BANK – WHAT COULD CHANGE THE RATING UP
Moody’s will consider upgrading Military Bank’s long-term ratings if (1) Vietnam’s sovereign rating is upgraded, and (2) the bank posts improved standalone credit metrics that lead to a higher BCA.
Moody’s could upgrade Military Bank’s BCA if the macroeconomic and operating conditions for banks in Vietnam improve, leading to a higher Macro Profile for the country.
MILITARY BANK – WHAT COULD CHANGE THE RATING DOWN
Moody’s could downgrade Military Bank’s BCA and ratings if (1) the bank demonstrates a material deterioration in its capital adequacy, or (2) the operating environment deteriorates significantly, against the backdrop of a loosening in the bank’s underwriting practices, thereby exposing it to asset-quality risks.
OCB – WHAT COULD CHANGE THE RATING UP
Moody’s will consider upgrading the BCA if the bank’s adjusted problem loan ratio falls below 4% and its TCE ratio exceeds 10%. Loan diversification away from real estate and construction loans, which Moody’s considers as high risk in Vietnam, would also be positive for the BCA. In addition, an improvement in Vietnam’s Weak Macro Profile would be BCA positive.
The B2 long-term ratings could be upgraded if both the following conditions are met: the bank’s BCA is upgraded and Vietnam’s sovereign rating is upgraded.
OCB – WHAT COULD CHANGE THE RATING DOWN
OCB’s long-term ratings could be downgraded if its adjusted problem loan ratio rises above 10% of gross loans, or if its TCE ratio drops significantly below 7%. The ratings are also sensitive to a significant weakening in the bank’s liquidity.
SHB – WHAT COULD CHANGE THE RATING UP
Moody’s will consider raising SHB’s BCA if its financial results demonstrate sustained improvement in asset quality and loss-absorbing buffers, including loan-loss reserves and capital buffers. A reform program that drives sustainable recapitalization, greater transparency and more effective risk management could also have positive rating implications for SHB.
Moreover, Moody’s could upgrade the BCA if the macroeconomic and operating conditions for banks in Vietnam improve, leading to a higher Macro Profile for the country.
SHB – WHAT COULD CHANGE THE RATING DOWN
The bank’s BCA could be downgraded as a result of a material deterioration in its asset quality and capital adequacy levels.
The long-term ratings could be downgraded if there are signs that necessary government support may not be forthcoming to restore economic solvency.
SACOMBANK – WHAT COULD CHANGE THE RATING UP
The ratings could be upgraded if the bank materially improves its solvency profile, by successfully repossessing and disposing of collateral, including writing off large parts of its problem assets. Sustainable improvements in the bank’s liquidity profile will also be positive for the rating. Furthermore, a substantial core capital increase will be positive for the ratings.
However, Moody’s see a low probability of the bank being recapitalized.
SACOMBANK – WHAT COULD CHANGE THE RATING DOWN
The ratings could be downgraded if the bank achieves only limited success in cleaning its balance sheet through collateral disposals in the next 12-18 months, or if its liquidity profile deteriorates below its currently weak level.
TPBANK – WHAT COULD CHANGE THE RATING UP
Moody’s will consider upgrading the BCA if both conditions are met: the adjusted problem loans ratio decreases to below 4%, and TCE ratio exceeds 10%. A material reduction in the market funds ratio will also be positive for the BCA.
The B2 long-term ratings could be upgraded if both conditions are met: BCA is upgraded and Vietnam’s government ratings is upgraded.
TPBANK – WHAT COULD CHANGE THE RATING DOWN
The ratings could be downgraded if the problem loans ratio — as adjusted by Moody’s — increases in excess of 10% of gross loans, or if the TCE ratio drops significantly. The ratings are also sensitive to a significant weakening in the liquidity profile.
The rating could be downgraded if the government rating is lowered, or if the Macro Profile on Vietnam is revised downwards.
VIB – WHAT COULD CHANGE THE RATING UP
Significant improvements in asset quality, coupled with a stable TCE ratio, would be positive for the BCA and credit ratings. Credit ratings could also be upgraded if the sovereign rating is upgraded.
VIB – WHAT COULD CHANGE THE RATING DOWN
The ratings could be downgraded if the bank’s asset quality deteriorates to such an extent that potential credit losses almost fully deplete its loss-absorbing buffers. A significant deterioration in capital and liquidity metrics will also be negative for the rating.
VIETINBANK – WHAT COULD CHANGE THE RATING UP
Material improvements in asset quality and the TCE ratio will be positive for the bank’s BCA. The long-term ratings of VietinBank could be upgraded if the sovereign rating is upgraded.
VIETINBANK – WHAT COULD CHANGE THE RATING DOWN
The BCA of the bank could be downgraded if there is a material deterioration in its financial metrics, such as a weakening of its asset quality or TCE ratio. The bank’s long-term ratings will come under downward pressure if there is a multi-notch downgrade of the BCA, or if the assumptions for government support are lowered.
MSB – WHAT COULD CHANGE THE RATING UP
A material reduction in problem assets, including the bank’s Vietnam Asset Management Company balance, could lead to upward rating pressure. Improved profitability will also be positive for the rating.
MSB – WHAT COULD CHANGE THE RATING DOWN
The rating could be downgraded or the outlook revised to stable or negative if there is a further deterioration in asset quality and a material depletion of the bank’s capital buffers in the medium term.
VP BANK – WHAT COULD CHANGE THE RATING UP
The long-term ratings could be upgraded if Vietnam’s sovereign rating is upgraded.
Moody’s will also consider raising VP Bank’s BCA and long-term ratings if its financial results demonstrate sustained improvements in asset quality and loss-absorbing buffers, including loan-loss reserves and capital buffers.
Moreover, Moody’s could upgrade the BCA of the bank if the macroeconomic and operating conditions for banks in Vietnam improve, leading to a higher Macro Profile for the country.
VP BANK – WHAT COULD CHANGE THE RATING DOWN
VP Bank’s long-term ratings could be downgraded if the bank pursues an overly aggressive expansion strategy that leads to a loosening of underwriting practices, which then pose asset-quality risks, or a material decline in capitalization.
TECHCOMBANK – WHAT COULD CHANGE THE RATING UP
Moody’s will consider upgrading the bank’s ratings if both 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. Moreover, the BCA of the bank could be upgraded if the macroeconomic and operating conditions for banks in Vietnam improve, leading to a higher Macro Profile.
TECHCOMBANK – WHAT COULD CHANGE THE RATING DOWN
The BCA and credit ratings could be downgraded in case of a material deterioration in the bank’s solvency and/or liquidity metrics.
Source: Biznews
