Leaders of many joint stock commercial banks affirmed that Moody’s considered lowering the trust of 17 banks that did not have to rely on bank health. In fact, the liquidity, especially the foreign currency liquidity of the banking system, is at the best level ever.
Good health record is still in danger of falling in the credit rating
Credit rating agency Moody’s has just announced the consideration of lowering national trust with the local and foreign currency loans of the government of Vietnam (currently Ba3), on the grounds of late payment of government debt obligations. Associated, 17 Vietnamese banks are also under consideration of downgrade by Moody’s.
Regarding this issue, the leaders of commercial banks all affirmed, in fact, Moody’s still highly appreciated the health of the Vietnamese banking system. The consideration of trustworthiness of banks and businesses was entirely influenced by the country’s trustworthiness.
“The credit worthiness of Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank) is at the maximum level, equal to the national one. Therefore, if the national confidence is downgraded, the credibility of Vietcombank will also be lowered”, said Nguyen Thanh Tung, the deputy general director of Vietcombank.
Talking to reporters of the Vietnam Investment Review, Nguyen Dinh Tung, general director of Orient Commercial Joint Stock Bank (OCB) also said that the credit rating of banks and businesses had always been affected by the national credit rating. If the national credit rating is raised, the credit rating of the business is also raised and vice versa.
“I think that Moody’s decision is based on technical factors rather than on its ability, competence or prospects. In fact, Vietnam’s foreign currency liquidity capacity has improved sharply and is very strong compared to the beginning of the year, as well as previous years, ” Tung commented.
According to Tung, a series of international organisations such as Asian Development Bank (ADB) and World Bank (WB) regularly have their assessments on Vietnam and all share this view. The country’s foreign currency liquidity has never been as good as at present, reflected in record foreign exchange reserves, Foreign Direct Investment (FDI) and Foreign Institutional Investor (FII) increased sharply, even the State Bank of Vietnam (SBV) had to throw dong to buy less foreign currencies because of oversupply. Based on foreign currency liquidity, Vietnam should have been upgraded, not downgraded.
Leaders of many banks said that Moody’s review period was three months, this was quite strange. Normally, units participating in the rating would be reviewed every six months by Moody’s, but this time, Moody’s planed to review it every three months. This showed that Moody’s might also realise that lowering the national credit rating to Vietnam had not reflected the true nature.
Analysts of Yuanta Vietnam Joint Stock Company (Yuanta Vietnam) said that Moody’s currently only considered, not relied on. In fact, Vietnam had almost no risk of solvency, because of abundant foreign exchange reserves of approximately $70 billion, equivalent to nearly 14 weeks of imports, a trade surplus maintained at a high level. FDI investment grew steadily. The payment of Vietnam’s debt obligations was still going on normally.
However, Yuanta Vietnam also warned that Moody’s would lower Vietnam’s credibility if the investigation process considered that the administrative gap still existed and posed risks of future debt repayment. Therefore, Moody’s warning is a motivation for the government to overcome institutional and administrative procedures.
Leaders of commercial banks and securities companies said that if the possibility of Moody’s downgrading of credit occurred, the biggest impact was that banks would have to raise capital with higher interest rates (the higher the credit risk was the higher the interest rates is required).
However, many leaders of banks said that even if Moody’s lowered the bank’s credit due to the national trust, not all investors raised lending rates with Vietnamese banks.
“Last time, many foreign investors and organisations turned to Vietnamese banks to lend. If Moody’s downgrades its credibility, the decision whether or not to raise lending rates would depend on investors. If the investors found that Moody’s losing credit rating was risky for loans, they would raise lending rates. And if the credit rating was merely technical, they probably would not increase lending rates, because investors were also afraid of losing business opportunities,” Tung commented.
Viet Capital Securities Joint Stock Company (VCSC) commented that individual indicators measuring the credit quality of bank stocks on the watch list of the past two years had improved steadily. The adjustment of credit rating, if taking place, would not reasonably reflect the progress that banks had made over the past time.
According to the Ministry of Finance, Moody’s decision “was based on a single incident as inappropriate”. The debt that Moody’s bases on Vietnam’s trustworthiness is a government-guaranteed debt, not a direct liability of the government. The Ministry of Finance said that Moody’s needed to clearly define the provisions of the government’s contingent liabilities and direct liabilities. Vietnam had never been late in fulfilling its government’s debt repayment obligations.
Experts forecast that in the next three months, Vietnam will work closely with Moody’s to ensure its Ba3 credit rating.
