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Rating Action:

Moody's takes rating actions on Vietnamese banks

Global Credit Research - 15 Dec 2010

Action follows the downgrade of Vietnamese government debt rating to B1 with a negative outlook

Singapore, December 15, 2010 -- Moody's Investors Service has today lowered the ratings of six Vietnamese banks following Moody's downgrade of the Vietnamese government's rating to B1 from Ba3.

The sovereign downgrade was announced earlier today.

All six banks' foreign currency deposit ratings were lowered to B2 from B1 and continue to have a negative outlook, in line with the revised foreign currency deposit ceiling.

In addition, Moody's lowered -- by one to two notches -- the Baseline Credit Assessments (BCAs) and the associated Bank Financial Strength Ratings (BFSRs) of all six banks.

This action reflects Moody's view that the same concerns that have led to negative action on the sovereign rating also have negative implications for the standalone credit profiles of the Vietnamese banks.

The banks affected by this rating action are:

(1) Asia Commercial Bank (ACB)

(2) Bank for Investment and Development of Vietnam (BIDV)

(3) Military Commercial Joint Stock Bank (MB)

(4) Saigon-Hanoi Commercial Joint Stock Bank (SHB)

(5) Techcombank (TCB)

(6) Vietnam International Bank (VIB).

Karolyn Seet, Moody's Assistant Vice President and lead analyst for the Vietnamese banks commented as follows:

"All the factors that are resulting in negative credit trends for the sovereign have increased the riskiness of Vietnam's operating environment for the banks. These include the heightened risk of a balance of payments crisis, the depreciation pressure felt on the Vietnamese dong, and the unconvincing policy responses to these issues."

"In addition, the financial difficulties of government-owned shipbuilder Vinashin and the likelihood that it will default on its foreign currency borrowings have negative implications for the banks."

"Some banks have material exposure to Vinashin itself. More generally, the Vinashin episode shows that predicting government support, even for major state-owned enterprises (SOEs) in Vietnam, is challenging and this raises the potential for increasing problem loans for SOE exposures in general."

While the rated banks' profitability and capital levels currently seem adequate, Moody's believes that the banking system could be vulnerable to adverse financial or economic developments. System-wide credit growth has been high and, at some rated joint stock banks, very high. The quality of these newly booked loans would be tested in a downturn.

In addition, a reliance on offshore funding has eroded the banks' international liquidity position. Their previously strong net foreign asset position has shifted into a growing net liability position. This development further increases the vulnerability of the banks' balance sheets to exchange rate depreciation and of the country's external payments position to external shocks.

While the principal driver of the bank downgrades has been a lowering of their intrinsic financial strength ratings, Moody's has also changed its systemic support assumptions for Vietnamese banks.

In the context of the Joint-Default Analysis (JDA) approach that is central to our bank rating methodology, we now consider Vietnam to be a "low" support country compared to our previous assessment of "medium".

This change principally reflects our concern that the extent and timing of support have become unpredictable, as evidenced by the government's apparent unwillingness to support Vinashin.

Moreover, Moody's has changed the systemic support indicator for Vietnamese bank ratings to B1 from Ba2, the former being at the same level as Vietnam's local currency government debt rating of B1.

We no longer assess the willingness and capacity of the Vietnamese government to support the banks as being higher than its ability to service its own debt.

The following ratings were lowered:

(1) ACB: BFSR/BCA to D-/Ba3 from D/Ba2, with a stable outlook; local currency long-term deposit rating to Ba3 from Ba2; local currency long-term issuer rating to Ba3 from Ba2; foreign currency long-term deposit rating to B2 from B1 with a negative outlook; foreign currency long-term issuer rating to B1 from Ba2 with a negative outlook

(2) BIDV: BFSR/BCA to E+/B2 from E+/B1, with a stable outlook; local currency long-term deposit rating to B1 from Ba2; local currency long-term issuer rating to B1 from Ba2; foreign currency long-term deposit rating to B2 from B1 with a negative outlook; foreign currency long-term issuer rating to B1 from Ba2 with a negative outlook;

(3) MB: BFSR/BCA to E+/B2 from D-/Ba3 with a stable outlook; local currency long-term deposit rating to B2 from Ba3; local currency long-term issuer rating to B2 from Ba3; foreign currency long-term deposit rating to B2 from B1 with a negative outlook; foreign currency long-term issuer rating to B2 from Ba3 with a negative outlook;

(4) SHB: BFSR/BCA to E+/B2 from D-/Ba3 with a stable outlook; local currency long-term deposit rating to B2 from Ba3; local currency long-term issuer rating to B2 from Ba3; foreign currency long-term deposit rating to B2 from B1 with a negative outlook; foreign currency long-term issuer rating to B2 from Ba3 with a negative outlook;

(5) TCB: BFSR/BCA to E+/B1 from D-/Ba3 with a stable outlook; local currency long-term deposit rating to B1 from Ba2; local currency long-term issuer rating to B1 from Ba2; foreign currency long-term deposit rating to B2 from B1 with a negative outlook; foreign currency long-term issuer rating to B1 from Ba2 with a negative outlook;

(6) VIB: BFSR/BCA to E+/B2 from D-/Ba3 with a stable outlook; local currency long-term deposit rating to B2 from Ba3; local currency long-term issuer rating to B2 from Ba3; foreign currency long-term deposit rating to B2 from B1 with a negative outlook; foreign currency long-term issuer rating to B2 from Ba3 with a negative outlook.

Specific considerations regarding the six affected banks are as follows:

ACB

Moody's downgraded ACB's BFSR to D- (mapping to a BCA of Ba3) from D (mapping to a BCA of Ba2) with a stable outlook.

In the current volatile environment, given the bank's high loan growth and increased competition in the market, the downgrade reflects the challenges which the bank faces in increasing its capital ratio to provide a larger cushion to absorb losses.

But Moody's maintains its view that the bank's standalone financials remain more robust than those of its Vietnamese -- and even its regional -- Ba3-rated peers. ACB is the fifth-largest bank in the system, with a 6.4% market share by assets. It is also the largest joint-stock bank.

The rating derives support from the bank's strong profitability, low level of nonperforming loans , good efficiency, and strong liquidity. It also takes into consideration ACB's disciplined credit approval and monitoring process, progressive risk management and controls, as well as the benefits of skills transfers from its shareholder (15% strategic stake), Standard Chartered Bank.

Moody's has changed the probability of government support to 'high' from 'very high', which does not lead to any uplift in the bank's local currency deposit rating of Ba3, one notch below the local currency deposit ceiling of Ba2.

BIDV

Moody's downgraded BIDV's BFSR to E+ (mapping to a BCA of B2) from E+ (mapping to a BCA of B1) with a stable outlook.

The downgrade takes into consideration the risks in the country's weak operating environment, the bank's poor -- but improving -- capital ratios, and its modest liquidity fundamentals. BIDV is the second-largest bank in the system, with a 10.2% market share by assets.

Moody's believes that the probability of government support is very high, which leads to a one-notch uplift in the bank's local currency deposit rating of B1 from its BCA of B2.

MB

Moody's downgraded MB's rating to E+ (mapping to a BCA of B2) from D- (mapping to a BCA of Ba3) with a stable outlook.

The downgrade reflects Moody's heightened concerns over the bank's rapid credit growth and yet modest loan loss-reserve coverage.

Another concern is the significant size -- in terms of proportion -- of the bank's off-balance sheet commitments. The latter are almost the size of its loan portfolio and consist largely of letters of credit. Should these off-balance sheet items need to be funded, the bank's capital and liquidity ratios would be negatively affected, if appropriate action is not taken to cushion any shortfalls.

In addition, the bank faces other constraining factors: limited franchise (as the ninth-largest bank in the system, with a 3.3% market share by assets), its narrow product diversification, and the inherent challenges of the Vietnamese operating environment.

But the current rating also derives support from the bank's fairly healthy financial metrics, comparable to similarly-rated regional peers, with consistently good profitability in recent years, good capitalization ratios and low level of non-performing loans.

Moody's changed the probability of government support to 'low' from 'moderate'. There is no uplift in the bank's local currency deposit rating of B2 from its BCA.

SHB

Moody's downgraded SHB's rating to E+ (mapping to a BCA of B2) from D- (mapping to a BCA of Ba3) with a stable outlook.

The downgrade reflects our increasing concerns over the bank's very rapid credit growth, high credit risk concentration, low loan loss-reserve coverage, short operating history, and the challenging character of the operating environment in Vietnam.

Other constraining factors are the fact that SHB is a much smaller bank (as the 16th-largest in the system, with a 1.4% market share by assets) when it is compared with ACB and BIDV. It has a less extensive branch network.

Moody's changed the probability of government support to 'none' from 'low'. Its local currency deposit rating of B2 is at the same level as its BCA.

TCB

Moody's downgraded TCB's rating to E+ (mapping to a BCA of B1) from D- (mapping to a BCA of Ba3) with a stable outlook.

The downgrade takes into consideration the heightened risks pertaining to the country's volatile operating environment and the bank's modest franchise value (as the seventh-largest in the system, with a 3.9% market share by assets).

But the current ratings also reflect the bank's historically high profitability, strong capital adequacy ratios, good liquidity, and low cost efficiency. In addition, the bank's progressive risk management and controls, as well as the benefits of skills transfers from its shareholder HSBC -- which has a strategic 20% stake -- are also taken into account.

Moody's changed the probability of government support to 'moderate' from 'high'. There is no uplift in the bank's local currency deposit rating of B1 from its BCA.

VIB

Moody's downgraded VIB's rating to E+ (mapping to a BCA of B2) from D- (mapping to a BCA of Ba3) with a stable outlook.

The downgrade reflects the volatility inherent in Vietnam's operating environment, the bank's low loan loss reserve coverage, its high credit risk concentration, and its very high credit growth. It also captures the bank's smaller franchise (the 11th largest in the system, with a 2.5% market share by assets) when compared with ACB and BIDV. It has a less extensive branch network.

The rating further captures VIB's apparently disciplined credit approval and monitoring process, and the benefits of potential skills transfers from its strategic partner, the Commonwealth Bank of Australia (CBA), which has a 15% stake.

Moody's changed the probability of government support to 'none' from 'moderate'. Its local currency deposit rating is at B2, at the same level as its BCA.

PREVIOUS RATING ACTIONS AND PRINCIPAL METHODOLOGIES

The previous rating actions for ACB, BIDV, and TCB were taken on August 3, 2009, when their issuer and deposit ratings were downgraded to Ba2 from Ba1.

The previous rating action for MB was on September 22, 2010, when Moody's assigned first-time ratings to the bank.

The previous rating action for SHB was on August 10, 2010, when Moody's assigned first-time ratings to the bank.

The previous rating action for VIB was on August 13, 2009, when Moody's confirmed the D-/Ba3 BFSR of the bank.

The principal methodologies used in this rating were Moody's Bank Financial Strength Ratings: Global Methodology published in February 2007 and Incorporation of Joint-Default Analysis into Moody's Bank Ratings: A Refined Methodology published in March 2007.

ACB, headquartered in Ho Chi Minh City, had total assets of VND168 trillion (USD9.1 billion) as of end-2009.

BIDV, headquartered in Hanoi, had total assets of VND292 trillion (USD15.9 billion) as of end-2009.

MB, headquartered in Hanoi, had total assets of VND69 trillion (USD3.8 billion) as of end-2009.

SHB, headquartered in Hanoi, had total assets of VND27 trillion (USD1.5 billion) as of end-2009.

TCB, headquartered in Hanoi, had total assets of VND93 trillion (USD5.0 billion) as of end-2009.

VIB, headquartered in Hanoi, had total assets of VND57 trillion (USD3.1 billion) as of end-2009.

REGULATORY DISCLOSURES

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

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of maintaining a credit rating.

Moody's adopts all necessary measures so that the information it uses in assigning a credit rating 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 ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service 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 the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

Singapore
Karolyn C. Seet
Asst Vice President - Analyst
Financial Institutions Group
Moody's Investors Service Singapore Pte. Ltd.
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MD - Financial Institutions
Financial Institutions Group
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Moody's takes rating actions on Vietnamese banks
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