Credit rating agency Moody’s Investors Service recently lowered Vietnam’s national credit outlook to negative. This has affected the credibility of 18 commercial banks, but does not mean that the financial health of banks is weakening.
Banks expect a better rating
Moody’s Investors Service also affirmed that this decision was made after it lowered Vietnam’s sovereign debt outlook to negative despite maintaining the Ba3 rating.
Nguyen Dinh Tung general director of Orient Commercial Joint Stock Bank (OCB) said that the national credit ratings do not reflect the criteria for bank evaluation. In fact, in recent years, the Vietnam’s banking system has shown remarkable improvements. From a business perspective, everyone sees that banks’ results have been much better than previous years. The governance system of banks has also improved many standards on risk management, and market assess and business style have increasingly been standardised.
In particular, up to now, 18 banks, including 16 domestic banks and two foreign banks have been approved by the State Bank of Vietnam (SBV) to apply Circular 41/2016/TT-NHNN with regulations on minimum Capital Adequacy Ratio (CAR) under Basel II ahead of schedule. OCB’s general director believed that a system with up to 18 banks on the way of operating according to international practices is an unexpected improvement of the Vietnam’s banking system.
He even said that “when the business conditions are favourable, financial statements of banks are healthier, the risk management standards of the industry are upgraded, there will be banks meeting Basel III standards in 2020. Thus, the impacts of Moody’s recent credit rating have not yet reflected the health of banks and Vietnamese banks expect another more positive assessment from international rating organisations.”
Bank stocks continue to rise again.
Among 18 banks (An Binh Commercial Joint Stock Bank (ABBank), Asia Commercial Joint Stock Bank (ACB), Commercial Joint Stock Bank for Agriculture and Rural Development of Vietnam (Agribank), Commercial Joint Stock Bank for Investment and Development of Vietnam (BIDV), HCM City Development of Vietnam (HDBank), Lien Viet Post Commercial Joint Stock Bank (LienVietPostBank), Military Commercial Joint Stock Bank (MBBank), Maritime Commercial Joint Stock Bank (MaritimeBank), Nam A Commercial Joint Stock Bank (NamABank), OCB, Southeast Asia Commercial Joint Stock Bank (SeABank), Saigon Hanoi Commercial Joint Stock Bank (SHB), Vietnam Technological and Commercial Joint Stock Bank (Techcombank), Tien Phong Commercial Joint Stock Bank (TPBank), Vietnam International Commercial Joint Stock Bank (VIB), Commercial Joint Stock Bank for Foreign Trade of Vietnam (Vietcombank), Commercial Joint Stock Bank for Industry and Trade of Vietnam (VietinBank) and Vietnam Prosperity Commercial Joint Stock Bank (VPBank)) that were affected by Moody’s rating, most of them are listed on the stock market.
In the recent time, many banks have recorded positive recovery in business results, along with improved asset quality. Bank stocks are on their way back to the golden age. Typically, VCB stock of Vietcombank is approaching 100,000 dong per share, ACB stock is priced at two times higher than the previous time, or BID stock of BIDV is creating a fever when soaring by 46 percent in the last six months.
However, since the macroeconomic growth is more than expected, and the Foreign Direct Investment (FDI) is flowing strong, banks’ business is positive. Typically, Vietcombank’s third-quarter financial statement showed that its net interest income reached 25.938 trillion dong, up by 26.9 percent over the same period of last year, and the Net Interest Margin (NIM) continued to be expanded to 3.07 percent from 2.78 percent in the end of 2018. The bank’s profit from foreign exchange trading and service income also sharply increased, thereby helping the bank’s net profit grow impressive by 50%, reaching 14.116 trillion dong.
By the end of September 2019, the outstanding credit to customers of Vietcombank reached 708.096 trillion dong, up by 12.06 percent compared to the beginning of the year, while capital mobilised from customers reached 902.184 trillion dong, up by 12.5%. the net Lending to Deposits Ratio (LDR) continued to be at a safe level of 76.9%, significantly lower than the 90 percent limit under the current regulations.
“Vietcombank still has room for lending in the coming years without being under too much pressure on mobilisation capacity, and for improving NIM in the event that Vietcombank continues to expand credit to individual customers instead of the interbank market,” said Phu Hung Securities Company. Vietcombank’s profit is forecasted to reach one billion US dollar, and this will be an important milestone in the business performance of a Vietnamese bank.
Similar situation happened in TPBank when it recorded 1.620 trillion dong of pre-tax profit in the first half of the year, up by more than 50 percent compared to the same period of last year. After being in an extremely difficult case, ACB is coming back strong with nine-month profit growth of 18%, reaching 4.448 trillion dong.
Despite posting strong profit growth, banks in general are still focusing on monitoring and settling bad debts. This basically helps some banks maintain bad debt ratios at fairly low levels. ACB’s bad debt ratio has fallen from 0.73 percent to 0.67%, while Vietcombank’s bad debt ratio continues to be kept at around 1.08%, etc.
With focus on risk provisioning, the Vietcombank’s Loan Loss Provision (LLR) has gradually increased over the years, reaching 1.85 percent in the first nine months of 2019. This is the highest LLR in the entire banking system, showing that Vietcombank’s debt quality is strictly controlled, the room for bad debt recovery in the future is very large, and reducing risk provisioning costs is feasible.
The report of the SBV submitted to the National Assembly in the 2019 end of the year meeting stated that the total charter capital of the system of credit institutions as of late August 2019 reached 591.8 trillion dong, up by 2.57 percent compared to the end of 2018, and up by 15.5 percent compared to the end of 2017. The equity of the entire banking system was more than956.1 trillion dong, up by 12.3 percent over the end of 2018 and up by 29.7 percent compared to the end of 2017. The minimum CAR of the system was 11.9%. In addition, the total outstanding credit of the system reached more than 8,000 trillion dong, while total capital mobilisation was nearly 10,000 trillion dong.
The prospect of growing more stably in the coming years of the banking system is drawing attention of many investors. According to the US investment bank JP Morgan, Vietnamese banks are becoming one of the few examples which combine the two factors of high and stable profit growth over a long period. This together with a favourable credit cycle will bring significant profits to banks in the coming years.
“The opportunity to invest in Vietnamese banking system is equivalent to that of Indonesia in 2005 2013 period and of India in 2010 2017 period,” said JP Morgan.
