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Fitch affirms Vietnam's Agribank at 'B'; outlook stable
Fitch Ratings has affirmed Vietnam Bank for Agriculture and Rural Development's (Agribank) Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'B'. The Outlook is Stable. At the same time, the agency has affirmed Agribank's Viability Rating (VR) at 'ccc' and Support Rating Floor at 'B'. A full rating breakdown is provided at the end of this release.
* Vietnam's ACB and Sacombank: outlook stable
* Fitch affirms Vietinbank at 'B'; outlook stable
The IDR and Support Rating Floor of Agribank are at the same level, incorporating Fitch's expectation of extraordinary state support from the government, if needed, albeit within the government's limited capacity in light of the 'B+' sovereign rating. The agency's view of support is based on Agribank's 100% government ownership, key policy role in Vietnam's agriculture sector and systemic importance as the country's largest bank. Any perceived diminishing in the propensity or ability of the government to provide extraordinary state support would be negative for Agribank's ratings.
Agribank's VR reflects its very weak standalone financial profile resulting largely from its agricultural-oriented policy role but also takes into account its large domestic franchise. Increased threat to the bank's solvency, with dangerously low capital and severe asset quality deterioration, would be negative for its VR. On the other hand, a significant and sustainable improvement in the bank's financial profile could result in a positive rating action, although this likelihood is low in the near-term given the bank's structural weaknesses and the challenging operating environment.
The bank's reported non-performing loans (NPLs) are the highest among domestic peers. Its low level of reserves, together with a high level of special mentioned loans (SMLs) and a slower economic backdrop, is likely to keep credit costs elevated in the near- to medium-term. As a result, Fitch expects the bank's profitability to remain low, given also potential margin squeeze from a regulatory cap on lending rates on the agriculture sector.
Agribank had been benefitting from regulatory forbearance, since its reported total capital adequacy ratio (CAR) was below the current regulatory minimum of 9% for many years until 2011. An improved reported total CAR of 9.5% at end-March 2012, due to fresh equity from the government, was nonetheless just slightly above the regulatory minimum. Moreover, loan impairment remains a major threat to capital in light of the bank's weak outlook for asset quality and its limited internal capital generation.
Agribank has the largest deposit base among Vietnamese banks, reflecting its government ownership and widespread domestic presence. A large part of its deposits, together with funds from government bodies and international organisations, have been channelled into loans, which make up about three quarters of the bank's asset base. As a result, the bank's liquidity has been fairly tight, with liquid assets representing only 17% of short-term liabilities.
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 'ccc'
- Support Rating Floor affirmed at 'B'
- Support Rating affirmed at '4'
Fitch ratings
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