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Rating Action:

Moody's takes positive rating actions on four Vietnam banks

06 Apr 2018

Singapore, April 06, 2018 -- Moody's Investors Service has upgraded the long-term local currency deposit and local- and foreign-currency issuer ratings of Asia Commercial Bank (ACB), Military Commercial Joint Stock Bank (Military Bank), and Vietnam Technological and Commercial JSB (Techcombank) to B1 from B2.

Moody's has also affirmed the foreign currency deposit ratings of these three banks at B2, with the ratings constrained by Vietnam's foreign currency deposit ceiling of B2.

And, Moody's has upgraded the Baseline Credit Assessments (BCA) for the three banks to b1 from b2.

At the same time, Moody's has affirmed the long-term local and foreign-currency deposit and issuer ratings of Vietnam Prosperity Joint Stock Commercial Bank (VP Bank) at B2, and upgraded the bank's BCA to b2 from b3.

Simultaneously, Moody's has changed the outlooks on the local-currency deposit and local- and foreign-currency issuer ratings of ACB, Military Bank, and Techcombank to stable from positive, and revised the outlook for the same ratings for VP Bank to positive from stable.

The full list of affected ratings and assessments is provided at the end of this press-release.

The ratings of the other 12 banks rated by Moody's in Vietnam remain unchanged.

RATINGS RATIONALE

ACB, MILITARY BANK AND TECHCOMBANK

Moody's upgraded the ratings of ACB, Military Bank and Techcombank to B1 from B2 based on Moody's upgrade of the banks' BCAs to b1 from b2.

For ACB, the upgrade of its BCA reflects its improved asset quality, following the good progress in the resolution of its legacy problem assets, including the problem assets related to a group of six companies tied to its former Vice Chairman Mr. Nguyen Duc Kien. ACB's problem loans ratio, as adjusted by Moody's, declined to 0.95% at the end of 2017 from 2.99% at the end of year 2016, driven largely by the full write-down of the VND1.5 trillion of bonds issued by the Vietnam Asset Management Company (VAMC).

In Vietnam, Moody's defines problem loans as loans under categories 2-5 of Vietnamese accounting standards, and gross bonds issued by the VAMC. Moody's expects ACB's asset quality to remain stable over the next 12-18 months on the back of an improvement in the operating environment, which will in turn support the repayment capacity of the bank's borrowers.

ACB's BCA also reflects Moody's expectation of a gradual decline in the bank's capital levels, as growth outpaces internal capital generation. At the end of 2017, the bank's tangible common equity to risk-weighted assets (TCE/RWA) stood at a moderate 8.2%.

The upgrade of Military Bank's BCA to b1 from b2 is driven by the consistent improvement in its asset quality as well as Moody's expectation of an improvement in the bank's return on tangible assets (ROA) in 2018, as it expands into the higher yielding retail segment, and reduces its loan loss provisioning levels.

The bank's problem loans ratio improved to 2.9% in 2017 from 4.7% in 2016, mainly due to the full write-off of VAMC bonds for VND3.4 trillion. Moody's expects that Military Bank's asset quality will remain stable over the next 12-18 months.

On the other hand, Military Bank's BCA also takes into consideration the bank's modest loss-absorbing buffers and rapid loan growth which will exert downward pressure on its capitalization.

As for Techcombank, its BCA upgrade is driven by improved solvency metrics, namely capital, asset quality and profitability.

The bank substantially improved its core capital buffer through different transactions in the last five months, with the latest and most significant being the USD370 million capital injection in March 2018 from a US private equity firm, Warburg Pincus. On a pro-forma basis as of the end of 2017, Moody's estimates that the bank's TCE/RWA increased to 14.5%, from 9.0% in 2016, giving Techcombank the largest core capital buffer among the 16 Moody's-rated banks in Vietnam.

Moody's expects that the bank's TCE/RWA ratio will normalize at a lower level over the next two years, driven by credit growth and investments.

Techcombank's adjusted problem loans ratio improved to 4.2% in 2017 from 7.3% in 2016, including loans under categories 2-5 of Vietnamese accounting standards, gross VAMC bonds and problematic receivables. Moody's notes that the stock of gross problem assets decreased 37% in 2017 to VND6.8 trillion, mainly due to the full write-off of VAMC bonds for VND2.9 trillion, and a substantial decrease in receivables. Moody's expects that Techcombank's will fully write-off its receivables for VND1.9 trillion in 2018, contributing to the bank's healthier asset quality.

Techcombank's loan book was fairly diversified at the end of 2017, with 44% in the corporate segment, 16% in the SME segment, and 40% in retail loans. The share of retail loans will likely increase in 2018, while that of corporate loans will decrease.

Techcombank's ROA improved to 2.4% in 2017 from 1.3% in 2016. The improvement was mainly driven by lower credit costs, as well as a one-off gain related to an insurance distribution contract (VND1.4 trillion fee). Moody's expects that the bank will maintain a good ROA of around 2% in 2018-2019.

Moody's continues to incorporate a moderate probability of support from the Government of Vietnam (B1 positive) in the ratings of ACB, Military bank and Techcombank. However, this moderate support assumption does not result in any ratings uplift, because these banks' b1 BCAs are at the same level as Vietnam's B1 sovereign rating. Moody's moderate systemic support assumption for these three banks is driven by their modest market shares and the history of public support for the country's banking system.

VP BANK

Moody's affirmed VP Bank's B2 ratings and upgraded its BCA to b2 from b3.

The upgrade of VP Bank's BCA takes into account the bank's high profitability, as well as its improved capital buffer. The BCA also considers VP Bank's heightened credit risks from its consumer finance portfolio, and weak problem loan coverage when compared to domestic and global peers.

VP Bank's ROA outperformed that of most of its domestic peers, improving to 2.3% in 2017 from 1.7% in 2016. Pre-provision income grew by 56% in 2017 and 57% in 2016. Moody's attributes the strong revenue growth to the bank's growth, and its leading market share in the high margin consumer finance business.

The bank's TCE/RWA ratio improved to 12.1% at the end of 2017 from 8.5% at the end of 2016. The improvement was driven by the issuance of new shares, stock dividends and bonus shares, as well as higher retained earnings, against a more moderate year-on-year loan growth rate of 26% in 2017 compared to growth rates that averaged 41% during 2013-2016.

The b2 BCA also captures VP Bank's weak asset quality metrics, as the bank has 20% of its loans in the higher-risk consumer finance segment. Around 12% of its adjusted gross loans were problematic at the end of 2017; a result which was marginally higher than the 11% in 2016. Loan-loss reserves covered 51% of the bank's reported nonperforming loans at the end of 2017 (2016: 50%). If special-mention loans and bonds issued by VAMC are added, the problem loans coverage ratio falls to 17% as of the same date.

Moody's continues to incorporate a moderate probability of government support in VP Bank's ratings. However, this assessment of support does not result in any ratings uplift because the bank's b2 BCA is just one notch lower than the B1 sovereign rating for Vietnam. Moody's moderate systemic support assumption for VP Bank is driven by the bank's modest 3% share of system assets and loans at 30 September 2017.

FACTORS THAT COULD LEAD TO AN UPGRADE/DOWNGRADE

Moody's will consider upgrading the ratings of ACB, Military Bank and Techcombank if the following two conditions are met:

(1) Moody's upgrades Vietnam's sovereign rating, and

(2) The three banks post improved standalone credit metrics that lead to higher BCAs.

Moody's could upgrade the BCAs of these three banks, if macroeconomic and operating conditions for banks in Vietnam improve, leading to a higher Macro Profile for the country.

However, Moody's could downgrade the BCAs and ratings if: (1) the banks demonstrate a material deterioration in their capital adequacy, or (2) the operating environment deteriorates significantly, against the backdrop of a loosening of the banks' underwriting practices; thereby exposing them to asset quality risks.

As for VP Bank, Moody's could upgrade its ratings if Moody's upgrades Vietnam's sovereign rating.

Moody's will also consider raising VP Bank's BCA and long-term ratings, if its financial results demonstrate sustainable improvements in asset quality and loss-absorbing buffers, including loan loss reserves and capital buffers. Moreover, Moody's could upgrade the BCA of the bank, if macroeconomic and operating conditions for banks in Vietnam improve, leading to a higher Macro Profile for the country.

On the other hand, VP Bank's long-term ratings could be downgraded, if the bank pursues an overly aggressive expansion strategy that leads to a loosening of underwriting practices, which then pose asset quality risks or a material decline in capitalization.

The principal methodology used in these ratings was Banks published in September 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Asia Commercial Bank is headquartered in Ho Chi Minh City, with total assets of VND284,316 billion (USD12.5 billion) at 31 December 2017.

Military Commercial Joint Stock Bank is headquartered in Hanoi, with total assets of VND313,878 billion (USD13.8 billion) at 31 December 2017.

Vietnam Technological And Commercial JSB is headquartered in Hanoi, with total assets of VND269,392 billion (USD11.9 billion) at 31 December 2017.

Vietnam Prosperity Joint Stock Commercial Bank is headquartered in Hanoi, with total assets of VND277,752 billion (USD12.2 billion) at 31 December 2017.

LIST OF AFFECTED RATINGS

ASIA COMMERCIAL BANK

- Long-term foreign currency bank deposit rating affirmed at B2; outlook maintained at stable

- Long-term local currency bank deposit ratings upgraded to B1 from B2; outlook changed to stable from positive

- Long-term local and foreign currency issuer ratings upgraded to B1 from B2; outlook changed to stable from positive

- Long-term CR Assessment upgraded to Ba3(cr) from B1(cr)

- Short-term local currency and foreign currency deposit ratings affirmed at NP

- Short-term local currency and foreign currency issuer ratings affirmed at NP

- Short-term CR Assessment affirmed at NP(cr)

- BCA and Adjusted BCA upgraded to b1 from b2

- Outlook changed to stable from stable (m)

MILITARY COMMERCIAL JOINT STOCK BANK

- Long-term foreign currency bank deposit rating affirmed at B2; outlook maintained at stable

- Long-term local currency bank deposit ratings upgraded to B1 from B2; outlook changed to stable from positive

- Long-term local and foreign currency issuer ratings upgraded to B1 from B2; outlook changed to stable from positive

- Long-term CR Assessment upgraded to Ba3(cr) from B1(cr)

- Short-term local currency and foreign currency deposit ratings affirmed at NP

- Short-term local currency and foreign currency issuer ratings affirmed at NP

- Short-term CR Assessment affirmed at NP(cr)

- BCA and Adjusted BCA upgraded to b1 from b2

- Outlook changed to stable from stable (m)

VIETNAM TECHNOLOGICAL AND COMMERCIAL JSB

- Long-term foreign currency bank deposit rating affirmed at B2; outlook maintained at stable

- Long-term local currency bank deposit ratings upgraded to B1 from B2; outlook changed to stable from positive

- Long-term local and foreign currency issuer ratings upgraded to B1 from B2; outlook changed to stable from positive

- Long-term CR Assessment upgraded to Ba3(cr) from B1(cr)

- Short-term local currency and foreign currency deposit ratings affirmed at NP

- Short-term local currency and foreign currency issuer ratings affirmed at NP

- Short-term CR Assessment affirmed at NP(cr)

- BCA and Adjusted BCA upgraded to b1 from b2

- Outlook changed to stable from stable (m)

VIETNAM PROSPERITY JOINT STOCK COMMERCIAL BANK

- Long-term foreign currency bank deposit rating affirmed at B2; outlook maintained at stable

- Long-term local currency bank deposit ratings affirmed at B2; outlook changed to positive from stable

- Long-term local and foreign currency issuer ratings affirmed at B2; outlook changed to positive from stable

- Long-term CR Assessment upgraded to B1(cr) from B2(cr)

- Short-term local currency and foreign currency deposit ratings affirmed at NP

- Short-term local currency and foreign currency issuer ratings affirmed at NP

- Short-term CR Assessment affirmed at NP(cr)

- BCA and Adjusted BCA upgraded to b2 from b3

- Outlook changed to stable (m) from stable

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.

The below contact information is provided for information purposes only. Please see the ratings tab of the issuer page at www.moodys.com, for each of the ratings covered, Moody's disclosures on the lead rating analyst and the Moody's legal entity that has issued the ratings.

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: 81 3 5408 4110
Client Service: 81 3 5408 4100

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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