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Fitch affirms Vietinbank at 'B'; outlook stable
Fitch Ratings has affirmed Vietnam Joint-Stock Commercial Bank for Industry and Trade's (Vietinbank) Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'B'. The Outlook is Stable.
* Vietnam's ACB and Sacombank: outlook stable
* Fitch affirms Vietnam's Agribank at 'B'; outlook stable
The agency has also affirmed Vietinbank's Viability Rating (VR) at 'b-' and Support Rating Floor at 'B'. A full rating breakdown is provided at the end of this release.
Vietinbank's IDR is at the same level as its Support Rating Floor, reflecting Fitch's belief of a high propensity of extraordinary state support for the bank in the event of need, although the timeliness of such support is constrained by the government's low ability in view of its 'B+' sovereign rating. Vietinbank is the second largest bank in Vietnam by assets and is likely to remain majority-owned by the government. Any perceived diminishing commitment or ability of the government to support Vietinbank would be negative for the bank's IDR and Support Rating Floor.
Vietinbank's VR reflects its improved profitability and capital levels but also incorporates its vulnerable loan quality and tight liquidity. Substantial credit costs and persistently high loan growth, resulting in a sharp deterioration in capital, liquidity and asset quality could put further pressure on the bank's VR. On the other hand, a significant improvement in the bank's credit risk profile may be positive for the VR although Fitch views this as a remote prospect in the near term given the challenging domestic operating environment.
Slower economic growth and global economic uncertainty could result in further deterioration in Vietinbank's asset quality. Net new non-performing loans (NPLs, before write-offs) totalled 2% of average loans in 2011 (2010: 1%). An aggressive increase in write-offs and rapid loan growth of 25% explained the low headline NPL ratio of 0.75% at end-2011 (end-2010: 0.66%). The bank is still classifying loans based on only past due considerations, which partly explains the disparity between its special mentioned loans (SMLs) ratio of 2% at end-2011 with the double-digit range at two other state-owned banks which have transitioned to a stricter loan classification.
Vietinbank's capital improved after International Finance Corp's purchase of a stake in the bank, with a reported total CAR of 11% in 2011 (2010: 8%). Nonetheless, the bank's capital could eventually be consumed if it maintains its rapid loan growth. The bank's search for another strategic investor, which could boost its capital, is still in progress.
Fitch believes Vietinbank's profitability may moderate from higher levels in 2011, due to likely higher credit costs, and margin squeeze from the government's lending rate cap on selective sectors. Its loan/deposit ratio has remained high at over 100%. The bank has been relying on placements from government bodies and domestic on-lending programmes to support its lending activity. Including these additional funds, the adjusted loan/deposit ratio was lower at 88%.
Full list of ratings:
- Long-Term Foreign-Currency IDR affirmed at 'B'; Outlook Stable
- Short-Term Foreign-Currency IDR affirmed at 'B'
- Viability Rating affirmed at 'b-'
- Support Rating Floor affirmed at 'B'
- Support Rating affirmed at '4'
Fitch ratings
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