The long-term local currency deposit and the local- and foreign-currency issuer ratings of Asia Commercial Bank (ACB), Military Commercial Joint Stock Bank (MB), and Vietnam Technological and Commercial JSB (Techcombank) have been upgraded from B2 to B1, said Moody’s Investors Service in a statement.
Moody’s affirmed the foreign currency deposit ratings of these three banks at B2, with the ratings constrained by Vietnam’s foreign currency deposit ceiling of B2. The international rating agency also upgraded the Baseline Credit Assessments (BCA) for the three banks to B1 from B2.
At the same time, Moody’s affirmed the long-term local and foreign-currency deposit and issuer ratings of Vietnam Prosperity Joint Stock Commercial Bank (VPBank) at B2, and upgraded the bank’s BCA to B2 from B3.
The agency changed the outlooks on the local-currency deposit and local- and foreign-currency issuer ratings of ACB, Military Bank, and Techcombank to stable from positive, and revised the outlook for the same ratings for VPBank to positive from stable.
For ACB, the upgrade of its BCA reflects its improved asset quality, following the good progress in the resolution of its legacy problem assets, including the problem assets related to a group of six companies tied to its former vice chair Nguyen Duc Kien.
ACB’s problem loans ratio, as adjusted by Moody’s, declined to 0.95 percent in late 2017 from 2.99 percent in late 2016, driven largely by the full write-down of the VND1.5 trillion of bonds issued by the Vietnam Asset Management Company (VAMC).
Moody’s defines problem loans as loans under categories 2-5 of Vietnamese accounting standards, and gross bonds issued by VAMC. It expects ACB’s asset quality to remain stable over the next 12-18 months on the back of an improvement in the operating environment, which will in turn support the repayment capacity of the bank’s borrowers.
ACB’s BCA also reflects Moody’s expectation of a gradual decline in the bank’s capital levels, as growth outpaces internal capital generation. At the end of 2017, the bank’s tangible common equity to risk-weighted assets (TCE/RWA) stood at a moderate 8.2 percent.
The upgrade of Military Bank’s BCA to B1 from B2 is driven by the consistent improvement in its asset quality as well as Moody’s expectation of an improvement in the bank’s return on tangible assets (ROA) this year, as it expands into the higher yielding retail segment, and reduces its loan loss provisioning levels.
MB’s problem loans ratio improved to 2.9 percent in 2017 from 4.7 percent in 2016, mainly due to the full write-off of VAMC bonds for VND3.4 trillion. Moody’s expects that the bank’s asset quality will remain stable over the next 12-18 months.
On the other hand, MB’s BCA also takes into consideration the bank’s modest loss-absorbing buffers and rapid loan growth which will exert downward pressure on its capitalisation.
As for Techcombank, its BCA upgrade is driven by improved solvency metrics, namely capital, asset quality and profitability.
The bank substantially improved its core capital buffer through various transactions in the last five months, with the latest and most significant being the $370 million injection from a US private equity firm, Warburg Pincus, last month.
On a pro-forma basis as of late 2017, Moody’s estimates that the bank’s TCE/RWA increased to 14.5 percent from 9.0 percent in 2016, giving Techcombank the largest core capital buffer among the 16 Moody’s-rated banks in Vietnam. Moody’s also expects that its ratio will normalise at a lower level over the next two years, driven by credit growth and investments.
Techcombank’s adjusted problem loans ratio improved to 4.2 percent in 2017 from 7.3 percent in 2016, including loans under categories 2-5 of Vietnamese accounting standards, gross VAMC bonds and problematic receivables.
Moody’s notes that the stock of gross problem assets decreased 37 percent in 2017 to VND6.8 trillion, mainly due to the full write-off of VAMC bonds for VND2.9 trillion, and a substantial decrease in receivables. Moody’s expects that Techcombank’s will fully write-off its receivables for VND1.9 trillion later this year, contributing to the bank’s healthier asset quality.
Techcombank’s loan book was fairly diversified in late 2017, with 44 percent in the corporate segment, 16 percent in the small- and medium-sized enterprise segment, and 40 percent in retail loans. The share of retail loans will likely increase in 2018, while that of corporate loans will decrease.
Techcombank’s ROA improved to 2.4 percent in 2017 from 1.3 percent in 2016. The improvement was mainly driven by lower credit costs, as well as a one-off gain related to an insurance distribution contract (VND1.4 trillion fee). Moody’s expects that the bank will maintain a good ROA of around 2 percent in 2018-2019.
Moody’s also affirmed VPBank’s B2 ratings and upgraded its BCA to B2 from B3. The upgrade of this bank’s BCA takes into account its high profitability and improved capital buffer. The BCA also considers VPBank’s heightened credit risks from its consumer finance portfolio, and weak problem loan coverage when compared to domestic and global peers.
VPBank’s ROA outperformed that of most of its domestic peers, improving to 2.3 percent in 2017 from 1.7 percent in 2016. Pre-provision income grew by 56 percent in 2017 and 57 percent in 2016. Moody’s attributes the strong revenue growth to the bank’s growth, and its leading market share in the high margin consumer finance business.
The bank’s TCE/RWA ratio improved to 12.1 percent at the end of 2017 from 8.5 percent in late 2016. The improvement was driven by the issuance of new shares, stock dividends and bonus shares, as well as higher retained earnings, against a more moderate year-on-year loan growth rate of 26 percent in 2017 compared to growth rates that averaged 41 percent during 2013-2016.
The B2 BCA also captures VPBank’s weak asset quality metrics, as the bank has 20 percent of its loans in the higher-risk consumer finance segment. Around 12 percent of its adjusted gross loans were problematic in late 2017, a result which was marginally higher than the 11 percent in 2016.
Loan-loss reserves covered 51 percent of the bank’s reported non-performing loans in late 2017. If special-mention loans and bonds issued by VAMC are added, the problem loans coverage ratio would fall to 17 percent as of the same date.
The ratings of the other 12 local banks rated by Moody’s remain unchanged.
Moody’s Investors Service is a leading provider of credit ratings, research, and risk analysis. Its commitment and expertise contributes to transparent and integrated financial markets.
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