Recently, Moody's has updated the credit ratings for four banks in Vietnam including Vietnam International Bank (VIB), Orient Commercial Joint Stock Bank (OCB), Tien Phong Commercial Joint Stock Bank (TPBank) and Southeast Asia Commercial Joint Stock Bank (SeABank).
Accordingly, Moody's has rated the baseline credit assessment (BCA) of SeABank, VIB, OCB and TPBank at B1.
At the same time, Moody's changed the rating outlook for VIB, OCB and TPBank from stable to negative, while SeABank's outlook remains stable.
This rating also shows Moody's view that Vietnam's economic growth is negative, directly affecting banks' growth expectations.
Moody's is concerned that the liquidity crisis in Vietnam's real estate sector is damaging the asset quality of banks with a large market share in this sector. When mortgage loans could not be paid, it led to a sudden increase in bad debts of the above retail banks.
In addition, falling lending interest rates and higher credit costs are expected to affect the profitability of these banks.
In addition, maintaining the rating but changing the outlook to negative also shows Moody's concern that the deterioration of asset quality will negatively impact capital adequacy and achieved profits.
As of the end of June 2023, the non-performing loan (NPL) ratio of three banks all increased compared to the end of 2022, due to an increase in overdue debts from the retail segment with customers being small and medium enterprises.
In addition, banks also have a high proportion of outstanding credit loans from real estate and construction businesses, which are heavily affected by liquidity problems, thereby causing more concerns about current asset quality.
Moody's assesses that the capital adequacy of these banks will face difficulties in the next 12 to 18 months due to the decline in internal capital return coefficient. The tangible common equity (TCE) ratio of VIB and TPBank has been adjusted to decrease to 10.5% and 10%, respectively, as of the end of the year in June, from more than 11% at the end of 2022 due to the payment of dividends by cash for shareholders.
Meanwhile, OCB's capital adequacy has improved with a TCE ratio of 11.6% as of June 2023 compared to 11.2% at the end of 2022, supported by above-average returns industry average.
Moody's also predicts that the three banks' profitability will struggle in the next 12 to 18 months due to higher credit costs and lower net interest margins due to falling interest rates.
Dependence on capital mobilized from market 1 and low credit growth also affect business results, especially at a time when the economy is still difficult.
Meanwhile, SeABank's rating with a stable outlook reflects Moody's expectation that this bank's high and gradually improving capital adequacy level will help offset asset quality risks.
SeABank's plan to mobilize new capital from existing shareholders within the next 12 months and retain profits by paying stock dividends will help improve capital safety despite the ability to create internal capital declines.
SeABank's TCE ratio is 12.9% as of June 2023, the highest among banks rated by Moody's in Vietnam. However, this bank's current assets including cash and valuable papers only account for 9% of total assets as of June 2023.
In addition, according to Moody's, a rating upgrade of SeABank is unlikely to happen in the near future, due to weaker economic dynamics in Vietnam and continued tensions in the real estate sector.
On the contrary, with a negative outlook, an upgrade of banks' ratings is unlikely to happen in the near future. However, Moody's can adjust the outlook to stable if the bank's asset quality, bad debt ratio and profitability improve.
In addition, Moody's will downgrade the BCA ratings of these three banks if asset quality continues to decline, leading to higher credit costs and returns on tangible assets or if the banks' TCE ratio continue to decline.
In addition, weakening credit demand will also have a negative impact on the BCA ratings of these banks.
At the same time, Moody's also commented that the Government and the State Bank are taking proactive steps to support banks. Therefore, this agency may lower deposit and issuer ratings if Moody's assesses that government support for these banks weakens.
Compiled by VietnamCredit