Moody’s Investors Service in a recent report said that business results of Vietnamese banks in 2017 show a widening divergence in asset quality and profitability.
According to the firm’s just-released report, the 2017 results for the 14 Vietnamese banks rated by Moody’s show that asset quality improved moderately year over year. Profitability also improved, driven by robust macroeconomic conditions and growth in core income.
By contrast, capitalisation deteriorated because of rapid asset growth and cash dividends. However, the banks’ funding profiles weakened mildly, as they increased their reliance on market-sensitive liabilities, mainly borrowings from other banks, to fund loan growth with cheap short-term funding sources.
“For 2018, we expect that the banks will continue to improve their asset quality and profitability, while capitalisation will weaken,” said Eugene Tarzimanov, a Moody’s vice president and senior credit officer.
However, Rebaca Tan, a Moody’s analyst, said the credit profiles of banks with stronger capital buffers and lower asset risks would be further distanced from the other banks.
On asset quality in particular, Moody’s said that the improvement in 2017 versus 2016 was helped by problem asset recoveries and write-offs, as well as credit growth. The asset weighted-average problem loans ratio at the 14 rated banks fell to 5.7 percent at the end of 2017 from 6.7 percent the year before.
Notably, four banks fully wrote off Vietnam Asset Management Company bonds that they had received in exchange for problem assets, and Moody’s expected more such write-offs in 2018.
Problem loan coverage ratios also improved, although they are still at levels that are weak by international standards. Moody’s said that the banks’ asset quality will improve further in 2018, due to recoveries, but rapid credit growth could mask asset risks.
With profitability, Moody’s pointed out that the banks’ asset weighted-average return on assets rose to 0.9 percent in 2017 from 0.7 percent in 2016.
Profitability will continue to improve in 2018, on the back of the same factors that drove up profitability in the prior year, in particular, robust macroeconomic conditions and growth in core income.
As for capitalisation, the asset weighted-average ratio of tangible common equity to total assets for the banks slipped to 5.5 percent in 2017 from 5.7 percent in 2016, pressured by declines at State-owned banks, in particular.
Nevertheless, some banks, such as Vietnam Prosperity Commercial Bank (VPBank), Vietnam Technological and Commercial Bank (Techcombank), and HCM City Development Bank (HDBank), strengthened their capital bases through the sale of new shares.
Moody’s expected that more Vietnamese banks would increase capital by issuing new shares in 2018. However, overall capitalisation levels will remain under pressure over the next 12 months from credit growth and dividend payments.
Moody’s explained that in terms of funding, the banks’ funding profiles weakened moderately, as seen by the system-wide asset weighted-average loans-to-deposits climbing to 86 percent in 2017 from 85 percent in 2016. This trend could continue in 2018 because loan growth remains rapid.
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