Fitch Affirms 4 Vietnamese Banks' Ratings; Outlook Stable
The Long-Term Issuer Default Ratings (IDR) on both Agribank and Vietinbank were affirmed at 'B+' with Stable Outlooks, and Vietinbank's Viability Rating (VR) was affirmed at 'b-'.
The IDRs on both ACB and Military Bank were affirmed at 'B', and their VRs affirmed at 'b'. A full list of rating actions is at the end of this commentary.
KEY RATING DRIVERS
IDRS, SENIOR DEBT, SUPPORT RATINGS (SR) AND SUPPORT RATING FLOOR (SRF) OF AGRIBANK AND VIETINBANK
The ratings of Agribank and Vietinbank are driven by Fitch's expectation that the government would provide extraordinary support as both entities are systemically important and majority-owned by the Vietnamese government with quasi-policy functions in the domestic economy. Agribank and Vietinbank are the largest and second-largest banks respectively, by asset size in Vietnam with strong domestic franchises.
The banks' ratings are one notch down from Vietnam's sovereign rating (BB-/Stable) as the relative large size of the banking industry compared with GDP and the government's finances may limit the timeliness of support.
Vietinbank's senior notes are rated at the same level as its Long-Term IDR, given that the notes constitute direct, unsubordinated and senior unsecured obligations of the bank, and rank equally with other unsecured and unsubordinated obligations. The Recovery Rating on the notes is affirmed at 'RR4'. Fitch assigns Recovery Ratings to issues from entities with IDRs of 'B+' or below.
The Stable Outlook of Agribank and Vietinbank reflect the Stable Outlook on Vietnam's sovereign rating.
KEY RATING DRIVERS
VR OF VIETINBANK
Vietinbank's VR reflects its weak credit metrics characterised by high concentration risk in its loan book including to state-owned enterprises. Fitch believes the bank's low reported NPL ratio understates problematic exposures, thereby undermining the bank's reported capital levels. Vietinbank's loan-to-deposit ratio of around 100% is higher than peers'. However, the bank will likely have an advantage over private banks in times of stress as depositors would have higher confidence in a majority state-owned bank. Fitch does not expect the bank's recently announced plan to acquire Petrolimex Group Bank (PG Bank) to affect its VR due to the very small size of the latter (3.6% of Vietinbank's total assets).
KEY RATING DRIVERS
IDRS, VRS, SRS AND SRFS OF ACB AND MILITARY BANK
The Long-Term IDRs of ACB and Military Bank are driven by their VRs and remain constrained by lingering loan quality risks. Fitch believes that their capital encumbrance from the underreporting of NPLs is significantly lower compared with the state-owned banks.
ACB's ratings reflect its relatively stable credit profile and what Fitch believes to be better risk management on the back of assistance from its strategic shareholder, Standard Chartered Bank (SCB; AA-/Negative). Loan quality is likely to remain stable and less concentrated than peers' due to its focus on private SMEs and individuals. The reported NPL ratio was 2.2% at end-2014 (2013: 3.0%) while its Fitch Core Capital ratio declined slightly to 12.3% at end-2014 after purchasing treasury shares.
Military Bank's ratings reflect its franchise as one of the largest private commercial banks in Vietnam. Fitch expects that the bank will continue to generate stronger profitability relative to peers which in turn will support its capitalisation. The ratings also take into account the bank's above-industry-average loan growth, its high reliance on corporate deposits, and its stronger government linkages, relative to other private banks given its military background.
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 improved macroeconomic stability in Vietnam.
The '5' SRs and 'No Floor' SRFs of ACB and Military Bank reflect Fitch's view that state support may be possible but cannot be relied upon.
RATING SENSITIVITIES
IDRS, SRS and SRFS OF AGRIBANK, VIETINBANK, ACB AND MILITARY BANK
The SRs and SRFs are sensitive to shifts in the sovereign's credit worthiness and ratings, which at present, are on a Stable Outlook.
These ratings may be affected by any perceived change in the government's propensity to support the banks, although such a scenario is unlikely for the systemically important state-owned banks, including Agribank and Vietinbank. In contrast, the SRs and SRFs for ACB and Military Bank are already at the lowest end of the ratings scale.
RATING SENSITIVITIES
VRS OF VIETINBANK, ACB AND MILITARY BANK
Vietnamese banks may be pressured if asset quality further deteriorates, and significantly weakens the banks' capitalisation. Downward pressure for Vietinbank may be higher given its downward-trending capital ratios and higher loan book concentration. Negative rating action may also result from increasing risk appetite, which may be demonstrated by excessive asset growth, or event risks such as M&A or operational lapses that could materially affect the banks' credit profile.
VRs may be upgraded if structural issues such as lack of uniformity in loan classification standards and bad debt resolution are more adequately addressed - leading to greater transparency and sustainable improvement in the banks' asset quality and their overall financial profiles.
The rating actions are 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'
USD250m 8% notes due 2017 affirmed at 'B+'; Recovery Rating affirmed at 'RR4'
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'
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'
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