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Banking & Finance

Moody's considers upgrades for banks

Released at: 06:46, 07/09/2016

Moody's considers upgrades for banks

Photo: Duc Anh

Better economic conditions and business environment prompt credit ratings agency to review nine commercial banks in Vietnam.

by Hung Nguyen

Nine Vietnamese commercial banks were placed on review by Moody’s on September 5 for being upgraded in their ratings thanks to Vietnam’s better economic conditions and business environment.

In its latest assessment released on September 5 on Vietnam’s commercial banks, the credit ratings agency placed on review for upgrade the baseline credit assessments (BCAs) and long-term counterparty risk assessments (CRAs) of ABBank, ACB, Vietcombank, MB Bank, SHB, Sacombank, Vietinbank, VIB and Techcombank.

The ratings reflect the national macro environment improving and the banking sector benefiting from the improvements. “The improvement in the operating and economic environment for banks has been reflected in Moody’s change of Vietnam’s Macro Profile to ‘Weak’ from ‘Weak -’,” analysts at Moody’s believe.

Thank to Vietnam’s banking business environment being indicated as B1, Stable, banks’ credit profiles and notably their asset quality and profitability metrics have been improved.

Despite the improvement, Moody’s considers that Vietnam’s banking system remains undercapitalized against the backdrop of rapid credit growth and a high share of legacy problem assets that are not always adequately disclosed on the banks’ balance sheets. Moody’s expects that these challenges will continue to persist in the medium-term, despite some improvements.

Vietnamese banks benefit from the country’s robust economic growth as well as from the enhanced albeit still weak institutional strength.

Moody’s expects that Vietnam’s GDP will grow by 6 per cent in real terms in both 2016 and 2017, supported by the recovery of domestic demand and robust export performance.

The robust economic performance is positive for Vietnamese banks because it supports their liquidity and funding profiles and improves the recovery value of the banks’ legacy problem assets.

The financial system provided sufficient capital to Vietnam’s economy in the first eight months of 2016, according to the National Financial Supervisory Commission (NFSC). As at July 31, total capital provided to the market reached VND7,489 trillion ($335.88 billion), an increase of 12.5 per cent against the end of 2015. Of this, 74.9 per cent came from the banking system, an increase of 9.1 per cent. However, the NFSC is concerned that credit provision to priority sectors is still low, which indicates that credit absorption in the economy is not high.

Vietnam’s institutional strength improved for a third consecutive year, reflecting a longer track record of benign inflation, improved government effectiveness, rule of law, and control of corruption, as reflected in better scores on the World Bank’s Worldwide Governance Indicators as well as the recent progress on economic reform, said Moody’s.

The robust economic growth and improved business confidence contribute to the rapid credit growth in Vietnam, raising concerns about the quality of new bank credit. Moody’s generally views rapid credit growth as negative for the banks’ future asset quality.

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