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Rating Action:

Moody's downgrades eight Vietnamese banks

28 Sep 2012

Singapore, September 28, 2012 -- Moody's Investors Service has today downgraded the local and foreign currency deposit ratings of all eight Moody's-rated Vietnamese banks.

The rating downgrades primarily reflect the concurrent downgrade of all eight banks' standalone credit assessments, as well as the parallel downgrade of the Government of Vietnam, as described in a separate announcement that Moody's has also released today.

The bank financial strength ratings (BFSR) of all eight banks are now placed at E, mapping to caa1 on the long-term scale. These ratings were previously at E+, mapping to a range of b1 to b2 among individual banks on the long-term scale.

After incorporating the probability of support from the government, Moody's assigns two notches of uplift to both government-controlled banks -- Vietnam Bank for Industry and Trade (Vietinbank) and the Bank for Investment & Development of Vietnam (BIDV) -- resulting in their credit ratings being downgraded to B2 from B1, except for their foreign currency deposit ratings, which are downgraded to B3 from B2, given the constraint imposed by the lowering of the foreign currency deposit ceiling following the sovereign rating action.

For the six rated joint stock banks, Moody's has deemed the probability and likely extent of government support to be lower than that for the government-controlled banks, but nevertheless sufficiently likely to warrant an uplift of one notch. Therefore, for these joint stock banks, their new issuer and deposit ratings, in both local and foreign currencies, are B3.

Today's action also concludes the review of the ratings of Asia Commercial Bank initiated on August 24, 2012.

The related downgrade of the Government of Vietnam to B2 from B1 was taken into account when we derived our opinion on the willingness and capacity of the government to provide support to the banks.

Moody's has assigned a stable outlook to all bank ratings.

A more detailed bank-by-bank breakdown of these actions is available further below.

RATINGS RATIONALE

The downgrade of the standalone credit assessments reflects the increased probability that the eight banks will need extraordinary support to avoid economic insolvency.

Moody's analysis arises from multiple interconnected credit factors.

The operating environment for the banks has materially deteriorated and is now characterized by very weak loan growth and high interest rates. This is an environment in which Moody's expects to see continued and possibly sharp deterioration in asset quality, and pressure on bank profitability, thereby undermining the banks' already weak loss-absorbing cushions.

The central bank of Vietnam recently acknowledged that the level of non-performing loans already affecting the banks was higher than that reported by the banks themselves, and comprises at least 8.6% of total loans, according to the central bank's account of March 2012.

However, Vietnam's lack of alignment with international accounting and regulatory standards as well as the relative opacity surrounding the true economic position of its banks continues to mask the extent of the problems they face. In fact, the lack of transparency is such that Moody's has determined that it has prevented meaningful credit differentiation. As a result, it has assigned the same standalone credit assessments to all eight rated banks despite differences in their reported results.

"The measures contemplated by the Government of Vietnam to reform the banking sector and improve disclosure will prove positive in their effects, if fully implemented. However, for now, reforms are slow, the next steps are unclear, and bank shares are depressed, making new capital raisings unlikely. And with low profits expected over the next few quarters, it is difficult to see how the banks will be able to improve their capitalization for the time being", says Jean-Francois Tremblay, Moody's Singapore-based Associate Managing Director for South and South East Asia.

"And we cannot ignore the risk that the banks may continue to restrain their lending, with potential feedback loop implications for the economy," adds Tremblay.

"A further consideration behind the decision to assign caa1 standalone credit assessments to all rated banks is the risk that confidence in specific banks may be undermined in an environment in which further sanctions may be applied to bank executives or shareholders due to past malpractices. Although the situation has returned to normal, the considerable fall in deposits at Asia Commercial Bank and other Vietnamese credit institutions in August shows that confidence is fragile," says Tremblay.

The strong efforts of the central bank to provide liquidity to Asia Commercial Bank and the banking system more generally support Moody's decision to assume a modest amount of government support in its bank ratings for Vietnam.

The central bank has made strong statements of support for the banking system, indicating that it would do everything necessary to ensure a safe and sound banking sector. Moody's has assumed greater support in the ratings of the two large rated government-controlled banks (Vietinbank and BIDV) because of the presence of government ownership in both and their relatively significant market shares.

However, a tangible plan to recapitalize Vietnamese banks or relieve them of their problem loans has not yet been developed and Moody's support assumptions will evolve as the government's intentions become clearer.

In determining that the outlook is stable, Moody's has taken into account the view that the Vietnamese government has the fiscal capacity to support the banking system, although at some cost to its own credit profile, as reflected in the sovereign downgrade.

The standalone credit profile of any bank would be lowered -- to the "ca" category -- if it became clear that it was only avoiding default due to extraordinary systemic support. Deposit and debt ratings for all or some banks could be lowered if there are signs that support may not be forthcoming to the extent that is required to restore economic solvency.

By contrast, a more rapid reform program that leads to a clearer path towards recapitalization of the banks, greater transparency and more effective risk management could have positive rating implications for some or all banks.

RATING ACTIONS ON INDIVIDUAL BANKS

Asia Commercial Bank

The E+ bank financial strength rating (BFSR) was downgraded to E, which maps to caa1 on the long-term scale. The local currency and foreign currency long-term deposit ratings were downgraded to B3 from B2. The local currency and foreign currency long-term issuer ratings were also downgraded to B3 from B2. The revised ratings have stable outlooks. The short-term rating of Not Prime was unaffected.

Headquartered in Ho Chi Minh City, the bank had total assets of VND281,019 billion (USD13 billion) at December 2011.

Bank for Investment & Development of Vietnam

The E+ bank financial strength rating (BFSR) was downgraded to E, which maps to caa1 on the long-term scale. The local currency long-term deposit rating was downgraded to B2 from B1. The foreign currency long-term deposit rating was downgraded to B3 from B2 and was constrained by the foreign currency deposit ceiling. The local currency and foreign currency long-term issuer ratings were downgraded to B2 from B1. The revised ratings have stable outlooks. The short-term ratings of Not Prime was unaffected.

Headquartered in Hanoi, the bank had total assets of VND399,311 billion (USD19 billion) at December 2011.

Military Commercial Joint Stock Bank

The E+ bank financial strength rating (BFSR) was downgraded to E, which maps to caa1 on the long-term scale. The local currency and foreign currency long-term deposit ratings were downgraded to B3 from B2. The local currency and foreign currency long-term issuer ratings were also downgraded to B3 from B2. The revised ratings have stable outlooks. The short-term rating of Not Prime was unaffected.

Headquartered in Hanoi, the bank had total assets of VND138,698 billion (USD7 billion) at December 2011.

Saigon - Hanoi Commercial Joint Stock Bank

The E+ bank financial strength rating (BFSR) was downgraded to E, which maps to caa1 on the long-term scale. The local currency and foreign currency long-term deposit ratings were downgraded to B3 from B2. The local currency and foreign currency long-term issuer ratings were also downgraded to B3 from B2. The revised ratings have stable outlooks. The short-term rating of Not Prime was unaffected.

Headquartered in Hanoi, the bank had total assets of VND70,990 billion (USD3 billion) at December 2011.

Saigon Thuong Tin Commercial Joint-Stock Bank

The E+ bank financial strength rating (BFSR) was downgraded to E, which maps to caa1 on the long-term scale. The local currency and foreign currency long-term deposit ratings were downgraded to B3 from B1 for the local currency rating and from B2 for the foreign currency rating. The local currency and foreign currency long-term issuer ratings were also downgraded to B3 from B1. The revised ratings have stable outlooks. The short-term rating of Not Prime was unaffected.

Headquartered in Ho Chi Minh City, the bank had total assets of VND141,469 billion (USD7 billion) at December 2011.

Techcombank

The E+ bank financial strength rating (BFSR) was downgraded to E, which maps to caa1 on the long-term scale. The local currency and foreign currency long-term deposit ratings were downgraded to B3 from B1 for the local currency rating and from B2 for the foreign currency rating. The local currency and foreign currency long-term issuer ratings were also downgraded to B3 from B1. The revised ratings have stable outlooks. The short-term rating of Not Prime was unaffected.

Headquartered in Hanoi, the bank had total assets of VND179,668 billion (USD9 billion) at December 2011.

Vietnam Bank for Industry and Trade

The E+ bank financial strength rating (BFSR) was downgraded to E, which maps to caa1 on the long-term scale. The local currency long-term deposit rating was downgraded to B2 from B1. The foreign currency long-term deposit was downgraded to B3 from B2 and was constrained by the country's foreign currency deposit ceiling. The local currency and foreign currency long-term issuer ratings were downgraded to B2 from B1. Accordingly, the rating on the bank's outstanding senior unsecured foreign currency debt was also downgraded to B2 from B1. The revised ratings have stable outlooks. The short-term rating of Not Prime was unaffected.

Headquartered in Hanoi, the bank had total assets of VND459,842 billion (USD22 billion) at December 2011.

Vietnam International Bank

The E+ bank financial strength rating (BFSR) was downgraded to E, which maps to caa1 on the long-term scale. The local currency and foreign currency long-term deposit ratings were downgraded to B3 from B2. The local currency and foreign currency long-term issuer ratings were also downgraded to B3 from B2. The revised ratings have stable outlooks. The short-term rating of Not Prime was unaffected.

Headquartered in Hanoi, the bank had total assets of VND96,950 billion (USD5 billion) at December 2011.

The principal methodology used in these ratings was Moody's Consolidated Global Bank Rating Methodology published in June 2012. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant 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 relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant 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.

The ratings have been disclosed to the rated entities or their designated agent(s) and issued with no amendment resulting from that disclosure.

Information sources used to prepare each of the ratings are the following: parties involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's considers the quality of information available on the rated entities, obligations or credits satisfactory for the purposes of issuing these ratings.

Moody's adopts all necessary measures so that the information it uses in assigning the ratings is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

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.

Jean-Francois Tremblay
Associate Managing Director
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
SUBSCRIBERS: (65) 6398-8308

Stephen Long
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
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Singapore 48623
Singapore
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SUBSCRIBERS: (65) 6398-8308

Moody's downgrades eight Vietnamese banks
No Related Data.
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