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Rating Action:

Moody's assigns first-time B2 ratings to Vietnam's Nam A Bank

24 Jan 2019

Singapore, January 24, 2019 -- Moody's Investors Service has today assigned the following first-time ratings and assessments to Vietnam-based, Nam A Commercial Joint Stock Bank (Nam A Bank):

1. Long-term local and foreign currency deposit ratings of B2; stable outlook

2. Long-term local and foreign currency issuer ratings of B2; stable outlook

3. Short-term local and foreign currency deposit and issuer ratings of Not Prime

4. Baseline Credit Assessment (BCA) and adjusted BCA of b3

5. Counterparty Risk Assessments of B1(cr)/NP(cr)

6. Long-term local and foreign currency Counterparty Risk Ratings of B1

7. Short-term local and foreign currency Counterparty Risk Ratings of Not Prime

The outlook on the bank is stable.

RATINGS RATIONALE

The B2 long-term ratings assigned to Nam A Bank reflect its BCA of b3, and a one-notch uplift based on Moody's expectation of a moderate probability of support from the Government of Vietnam (Ba3 stable) to the bank in times of need.

The b3 BCA assigned to Nam A Bank is based on the good progress the bank made in recovering legacy problem assets, and the improvement in profitability. At the same time, Nam A Bank pursues an aggressive loan growth, which could weaken its asset quality and capitalization over time. The bank's funding quality is moderate due to its small deposit franchise in Vietnam.

Nam A Bank's asset quality has improved markedly since 2016, because of healthy cash recoveries on legacy problem assets. As a result, its problem loan ratio fell to 4.4% at 30 June 2018 from 11.3% in 2017 and 25.5% in 2016. Moody's definition of problem loans for Vietnam banks includes loans classified as special mention and non-performing under Vietnamese accounting standards, and gross Vietnam Asset Management Company (VAMC) securities. Moody's expects that Nam A Bank's asset risk will remain elevated over the next 12-18 months, because of its rapid loan growth of 33% (annualized) in the first nine months of 2018 and 51% in 2017; rates which were much higher than that of other Moody's-rated banks in Vietnam.

Nam A Bank has a corporate-centric loan portfolio, with corporate loans making up 70% of the bank's gross loans at 30 June 2018, and retail loans the remaining 30%. The bank's corporate loan portfolio has concentrations in the real estate and construction sectors, which Moody's views as credit negative. That said, the bank is gradually reducing its exposure to the real estate and construction sectors, and diversifying into other sectors namely green energy and manufacturing.

As a result of its rapid loan growth and still weak internal capital generation, Nam A Bank's capitalization has been on a declining trend. Tangible common equity to risk-weighted assets fell to 6.3% at 30 June 2018 from 6.8% in December 2017 and 8.7% in December 2016. While Moody's expects profitability to improve as the burden of high credit costs reduces, rapid loan growth will outpace internal capital generation and continue to strain the bank's capitalization.

Nam A Bank's funding is moderate. Customer deposits funded 75% of the bank's tangible banking assets, while market funds, predominantly interbank borrowings, funded 15% of tangible banking assets at 30 June 2018. Although the bank's deposit base is centered on individual depositors, its small market share in system deposits and limited branch network put it at a disadvantage in terms of cost of deposits when competing with other larger banks in the system. Nam A Bank's deposit base also has concentration to large retail deposits -- deposit size of more than VND1 billion made up 63% of the bank's retail deposit base.

The bank's liquidity is comfortable, with liquid resources representing 27% of tangible banking assets at 30 June 2018 (24% at the end of 2017). Of the total tangible banking assets, the higher-quality liquid assets, such as cash, balances with the central bank and government securities, constituted 11% at 30 June 2018. However, the composition of the liquid resources is somewhat weakened by the VND2 trillion of government securities (12% of total liquid resources) that the bank pledged for borrowings at 30 June 2018.

In terms of government support for Nam A Bank, Moody's applies the same moderate support assumption as for other private-sector banks in Vietnam. As a result, Nam A Bank's B2 long-term ratings incorporate one notch of uplift from its BCA of b3. The moderate support assumption is mainly underpinned by the bank's market share of around 0.6% of system assets at the end of 2017.

WHAT COULD CHANGE THE RATING UP

Moody's could upgrade Nam A Bank's long-term bank deposit and issuer ratings if Vietnam's sovereign rating is upgraded, and the bank posts improved standalone credit metrics that lead to a higher BCA.

Moody's could upgrade the bank's BCA if: (1) the bank shows material improvements in its asset quality and capitalization, and (2) the bank diversifies its loan portfolio away from real estate and construction loans, which Moody's considers of higher-risk than other loans in Vietnam.

WHAT COULD CHANGE THE RATING DOWN

Moody's could downgrade the long-term ratings of Nam A Bank if the bank's BCA is downgraded, due to a significant deterioration in its financial fundamentals. If all other rating factors are constant, the BCA would come under pressure if the bank reports a significantly increased problem loan ratio or significantly reduced capitalization. A material deterioration in funding and liquidity could also be negative for the ratings.

The principal methodology used in these ratings was Banks published in August 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Nam A Commercial Joint Stock Bank, headquartered in Ho Chi Minh City, reported total assets of VND64,820 billion ($2.81 billion) at 30 June 2018.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Rebaca Tan
Analyst
Financial Institutions Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Graeme Knowd
MD - Banking
Financial Institutions Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

No Related Data.
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