Global ratings agency puts Military Bank's long-term debt rating at stable.
The Military Commercial Joint Stock Bank of Vietnam (MB) has received a long-term debt rating of "B" from Fitch Ratings, with a stable outlook. The agency also assigned it a Viability Rating (VR) of "b".
The ratings reflect the bank's relatively strong financial profile and risk management compared to its local peers and its strong franchise as one of the largest private commercial banks in Vietnam. The ratings also incorporate the bank's above-industry-average loan growth and its high reliance on corporate deposits. MB Bank's reported asset quality metrics reflect a more conservative loan classification methodology relative to its peers.
Its report on MB indicates that Fitch has a adopted a more precise loading classification system than several banks in Vietnam. Mr. Le Cong, General Director of MB, said that its bad debt ratio has been lower than 3 per cent, which is under the ceiling required by Circular No.2 from the State Bank of Vietnam (SBV).
MB's loans are also allocated across multiple industries with high mortgage rates. The credit background will help minimize the potential risk from strong credit growth at MB.
Smaller than the four state-owned banks, MB targets to increase its asset size by 1.5-2 times faster than the industry average over the medium term.
Fitch expects MB Bank to maintain its capitalization at around current levels, as its quick asset growth is likely to be supported by high internal capital generation ability and the issuance of new capital, if needed.
Funding and liquidity have also generally been well managed with the loan-to-deposit ratio maintained below 70 per cent, supported by strong deposit growth in recent years. In contrast to its local peers, the bank relies highly on corporate deposits (63 per cent of total deposits as at the end of June 2014), in part driven by MB Bank's capabilities in corporate banking services.
The introduction of Circular No.36, taking effect in 2015, which forces cross-holdings in the banking industry to be less than 5 per cent, requires a change in shareholder structure at MB by the end of the year, but this is unlikely to significantly impact the bank's credit profile, according to Reuters.
MB Bank is currently 9.6 per cent owned by the Vietcombank (B+/Stable) and 10 per cent owned by the Vietnam Maritime Commercial Joint Stock Bank (unrated).
Fitch believes that MB Bank, as a listed company, is unlikely to face significant difficulties in finding new investors, considering its relatively strong credit profile in Vietnam.
The Vietnamese Government is trying to strengthen the banking sector's regulatory framework, which means ratings could be under pressure if loan quality deteriorates significantly more than what the current rating level entails, resulting in weakening capitalization. A change in the relationship with Viettel, which may result in a significant increase in funding and operating costs, will be a negative for MB's ratings.
Negative rating actions may also result from event risks such as an aggressive takeover/merger, which could result in a significantly weaker financial profile.