17 domestic banks whose credit ratings are about to be lowered by Moody’s this time are both state and private banks including VPBank, Techcombank, MBBank ...
Moody’s Investors Service has just announced the inclusion of 17 Vietnamese banks for credit rating downgrade in the upcoming period. The announcement came after a day when the credit rating agency informed a credit rating downgrade to Vietnam, currently at Ba3, although the Ministry of Finance said that this was inappropriate.
Banks are affected by national credit ratings
As explained by Moody’s, this review entirely depends on the credit rating downgrade with Vietnam made the previous day, and does not reflect the weakness of the banks' financial records. Notably, among these banks, there are 4 state-owned banks including Agribank
VCB + 0.83% and BIDV
BID-0.49%. In addition, many large private commercial banks are also currently on the list of being considered for credit reduction including MBBank
MBB0.0%, ACB, Techcombank
According to Moody's, these 17 banks will be influenced in many different ways by their credit rating of Vietnam. In particular, Vietnam's credit strength is an important input in Moody's rating for domestic banks. The reason is that the nation's credit strength affects the ability to provide support to banks in case of a stressful situation.
Accordingly, Moody's downgrading the credit rating with Vietnam will lead to the decrease or lack of Government support for some banks. In addition, in the event that the BCA or the long-term trust of banks is now equal to the national confidence or has hit the ceiling, Moody’s will also have to lower these ratings to ensure their adequacy.
Information from this credit ratings agency shows that the impact of the national credit rating for each bank will be different. In particular, state-owned banks including Agribank, Vietinbank, Vietcombank and BIDV will be reassessed for long-term local currency deposits and issuers of foreign and local currency debt. The reason is that these banks have the same level of trust with the country. For private banks including ACB, MBBank, and Techcombank, the criteria that were reviewed were BCA, long-term local currency deposit trust and local / foreign currency debt issuer, which is currently also in the same rating with the nation.
Meanwhile, the consideration with ABBank, OCB, TPBank, VIB and VPBank is limited to B1 foreign currency deposit criteria, related to B1 foreign currency deposit ceiling.
The review with HDBank and LienVietPostBank only affects issuer ratings and long-term deposits of these banks. Assessments of MSB, NamABank and SHB affect their long-term CRR and CRA.
Moody’s also affirmed that the credit ratings of these 17 banks could be maintained “stable”, if Vietnam's credit is also maintained in Ba3 with similar prospects. In the opposite case, if this agency downgrades Vietnam's credit rating, the banks’ rating will also go down.
Vietnam’s credit rating
On October 9, Moody's announced that they were considering downgrading national credit rating for Vietnamese Government's domestic and foreign loans, which is currently at Ba3. Moody's said that the basis for them to make this decision is due to the fact the restrictions on coordination among Government agencies lead to the delayed payment of government debt obligations.
However, the Ministry of Finance explained that this is a government-guaranteed debt obligation, which is part of the Government's contingent liabilities, not the Government's direct liabilities. Accordingly, Moody's needs to determine the Government's contingent liabilities and direct liabilities. Vietnam has never been late in fulfilling its Government's debt repayment obligations. The Ministry also affirmed that Moody’s putting Vietnam under consideration to downgrade based on a single incident is inappropriate.