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S&P revises Vietcombank outlook to stable; ratings affirmed
- Vietcombank's capital position has improved following MCB's acquisition of a 15% stake in the bank.
- We assess the Vietnam-based bank's capital and earnings to be weak.
- We are revising the outlook on the long-term rating on Vietcombank to stable from negative.
- We are also affirming the 'B+/B' counterparty credit ratings on the bank. At the same time, we are revising the SACP to 'b+' from 'b'.
Standard & Poor's Ratings Services said today that it had revised its outlook on the long-term rating on Bank for Foreign Trade of Vietnam (Vietcombank) to stable from negative. At the same time, we affirmed our 'B+/B' counterparty credit ratings on the bank. We also revised the stand-alone credit profile (SACP) of the bank to 'b+' from 'b'.
"The outlook revision reflects Vietcombank's improved SACP after Mizuho Corporate Bank Ltd. (MCB; A+/Negative/A-1) acquired a 15% stake in the bank. We no longer factor extraordinary government support into the rating on Vietcombank," said Standard & Poor's credit analyst Ivan Tan. "We revised Vietcombank's SACP to reflect the bank's improved capital position after the MCB deal."
We believe that Vietcombank's more moderate loan growth following the Vietnam government's credit tightening measures will support the bank's capital sustainability. We expect that the bank will continue to strengthen its balance sheet through higher retained earnings contributions and sensible dividend payouts.
"Vietcombank's capital and earnings are weak, in our view," said Mr. Tan. "Following MCB's capital injection, we expect Vietcombank's risk-adjusted capital ratio before diversification adjustments to be between 4.5% and 5% in the next 18-24 months."
We believe that margin pressure and higher funding costs due to the government's credit tightening measures will constrain Vietcombank's earnings. In our opinion, potentially higher credit costs may also threaten the bank's profitability as the credit cycle unfolds, particularly given Vietcombank's fast loan growth in the past few years.
"The alliance with MCB will provide Vietcombank with an enhanced products and services offering, and accelerate the alignment of the bank's risk management system and processes with international best practices," said Mr. Tan. "It could improve the bank's earnings profile and mitigate potentially higher credit costs. Nevertheless, the successful execution of this alliance remains to be seen. It hinges on the ability of the two organizations to co-operate to bridge the difference in risk culture and operating norms."
As part of the alliance, MCB will subscribe to 15% of Vietcombank's shares through a private placement of equity. The alliance will also involve provision of technical support, mutual cooperation, and opportunities for business partnerships with all Mizuho Financial Group companies.
The long-term rating on Vietcombank is the same as the SACP. We believe that Vietcombank has "high systemic importance" in Vietnam and assess the Vietnam government as "highly supportive". Nonetheless, we do not factor any extraordinary government support into the rating because the bank's SACP is already one notch below the local currency sovereign rating on Vietnam (BB-/Negative/B; axBB/axB).
"The stable outlook reflects our expectation that Vietcombank will maintain its strong market position and its financial profile despite challenging conditions and high inflation in Vietnam," said Mr. Tan.
We could raise the ratings on Vietcombank if the sovereign is upgraded or if we revise upwards the bank's SACP to 'bb-' following a sustained and substantial improvement in asset quality, profitability, and capitalization.
We may lower the ratings if Vietcombank's: (1) nonperforming loans increase sharply; (2) operating performance is poor; or (3) capitalization weakens substantially.
S&P, reuters
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