A branch of Vietcombank (Source: vaytieudung.net)In a report titled “Banking system outlook --Vietnam: Resilient economic growth drives stable outlook”, released on December1, Moody’s analyst Daphne Cheng said: “The banks’ balance sheet buffers areweak because of the size of their legacy problem assets. But while legacy loanlevels remain elevated, transparency in relation to such problem assets hasimproved.
Moreover, Vietnam’s rapid economic growth willimprove the recovery prospects of the banks’ legacy problem assets andstabilise asset risks.”
According to the ratings agency, its forecast ofthe stable outlook (B1 stable) is based on its assessment of five drivers:operating environment (stable); asset quality and capital(stable/deteriorating); funding and liquidity (stable); profitability andefficiency (stable); and systemic support (stable).
Under operating environment, Moody’s expectsVietnam’s economy to show resilient growth, supported by robust exports andforeign investment. The real GDP growth will remain strong, and Moody’sforecasts a growth of 6.1 percent in 2016 and 6.0 percent in 2017. Stableinflation and interest rates will support domestic demand and householdconsumption.
With regard to asset quality and capital,Moody’s believes that asset quality will remain stable but weak, while capitalbuffers will continue to deteriorate because of high loan growth. According tothe agency, the banks’ high credit growth is outpacing internal capitalgeneration and sources of external capital are limited.
Moody’s estimates a problem loan ratio of 3.8percent for rated banks, based on non-performing loans classified in categories3 to 5 under Vietnam Accounting Standards (VAS), plus special mention loansclassified in category 2 under VAS. However, including the gross value ofassets sold to the Vietnam Asset Management Company raises the problem assetsratio to 7.1 percent as on June 30, 2016, from 6.9 percent in end 2015.
As for funding and liquidity, system liquidityis tightening moderately as rapid lending growth is not matched by depositgrowth. Moody’s-rated banks reported an average loan to deposit ratio of 81percent as of June 30, 2016, up from 79 percent in end 2015.
However, low inflation and the Government’sde-dollarisation policy support a stable environment for the funding of localcurrency deposits. At the end of 2015, market funds financed 19 percent ofassets, down from 23 percent in 2012. Lower levels of inter-bank funding havealso decreased the risk of contagion.
According to Moody’s, profitability will remainstable but low as credit costs offset higher pre-provision income. Net interestmargins should show a slight compression because of the high level ofcompetition in the banking system.
According to the ratings agency, its forecast ofthe stable outlook (B1 stable) is based on its assessment of five drivers:operating environment (stable); asset quality and capital(stable/deteriorating); funding and liquidity (stable); profitability andefficiency (stable); and systemic support (stable).
Under operating environment, Moody’s expectsVietnam’s economy to show resilient growth, supported by robust exports andforeign investment. The real GDP growth will remain strong, and Moody’sforecasts a growth of 6.1 percent in 2016 and 6.0 percent in 2017. Stableinflation and interest rates will support domestic demand and householdconsumption.
With regard to asset quality and capital,Moody’s believes that asset quality will remain stable but weak, while capitalbuffers will continue to deteriorate because of high loan growth. According tothe agency, the banks’ high credit growth is outpacing internal capitalgeneration and sources of external capital are limited.
Moody’s estimates a problem loan ratio of 3.8percent for rated banks, based on non-performing loans classified in categories3 to 5 under Vietnam Accounting Standards (VAS), plus special mention loansclassified in category 2 under VAS. However, including the gross value ofassets sold to the Vietnam Asset Management Company raises the problem assetsratio to 7.1 percent as on June 30, 2016, from 6.9 percent in end 2015.
As for funding and liquidity, system liquidityis tightening moderately as rapid lending growth is not matched by depositgrowth. Moody’s-rated banks reported an average loan to deposit ratio of 81percent as of June 30, 2016, up from 79 percent in end 2015.
However, low inflation and the Government’sde-dollarisation policy support a stable environment for the funding of localcurrency deposits. At the end of 2015, market funds financed 19 percent ofassets, down from 23 percent in 2012. Lower levels of inter-bank funding havealso decreased the risk of contagion.
According to Moody’s, profitability will remainstable but low as credit costs offset higher pre-provision income. Net interestmargins should show a slight compression because of the high level ofcompetition in the banking system.
Although loan growth has shifted to thehigher-yielding consumer and small- and medium-size enterprise segments,deposit rates have increased. Bottom-line profitability will remain stablebecause higher pre-provision income will be offset by elevated credit costs.
On Government support, Moody’s predictions areunchanged. It assumes that systemic support will be forthcoming for State andprivate banks, in case of need. The Government’s capacity for capital injectionto banks is limited, and support will mainly be in the form of liquidity assistanceand regulatory forbearance.
Moody’s rated 14 banks in Vietnam, whichtogether accounted for 56 percent of the banking system assets on June 30,2016.
On Government support, Moody’s predictions areunchanged. It assumes that systemic support will be forthcoming for State andprivate banks, in case of need. The Government’s capacity for capital injectionto banks is limited, and support will mainly be in the form of liquidity assistanceand regulatory forbearance.
Moody’s rated 14 banks in Vietnam, whichtogether accounted for 56 percent of the banking system assets on June 30,2016.
Three of the 14 banks — JSC Bank for Investment and Development ofVietnam (BIDV; B1 local-currency deposit rating, stable), JSC Bank for ForeignTrade of Vietnam (Vietcombank; B1 local-currency deposit rating, stable) andVietnam Joint Stock Commercial Bank for Industry and Trade (Vietinbank; B1local-currency deposit rating, stable) — are government controled, while theother 11 are privately owned joint-stock banks.
The ratings agency has maintained a stableoutlook for Vietnam’s banking system since December 2014. -VNA
The ratings agency has maintained a stableoutlook for Vietnam’s banking system since December 2014. -VNA
VNA
