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Moody's assigns first-time B2 ratings to An Binh Bank
Moody's Investors Service has assigned first-time ratings to An Binh Commercial Joint Stock Bank (An Binh Bank): B2/Not Prime global local and foreign currency issuer ratings; B2/Not Prime local and foreign currency deposit ratings; and a b3 standalone baseline credit assessment (BCA) and b3 adjusted BCA.
The outlook on the long-term issuer and deposit ratings is stable.
Moody's has also assigned a Counterparty Risk Assessment (CR Assessment) of B2(cr)/Not Prime(cr).
RATINGS RATIONALE
The B2 long-term ratings assigned to An Binh Bank, which is based in Vietnam (B1 stable), incorporate its b3 BCA and a one notch uplift to reflect Moody's moderate systemic support assumption in case of stress.
An Binh Bank's standalone creditworthiness reflects the bank's good liquidity position and moderate capital adequacy. These positive factors are partly mitigated by the bank's relatively weak asset quality, poor profitability due to high loan loss provisions, and some reliance on market-sensitive funding.
Similar to most other rated banks in Vietnam, An Binh Bank has a relatively large share of assets that Moody's considers problematic. As of June 2015, problem loans (which Moody's defines as loans in categories 2-5 under Vietnamese accounting standards) amounted to 6.3% of gross loans, up from 5.9% in December 2014.
The bank also has other assets that Moody's considers problematic, such as securities from the Vietnam Asset Management Company (VAMC). Adding the net amount of VAMC securities to the loan book translates into a problem loans ratio of 13.5% as of June 2015, down slightly from 13.8% in December 2014.
The bank's tangible common equity (TCE)/risk-weighted assets (RWA) ratio stood of 11.4% at end-2014, was modest in light of asset quality challenges. Moreover, the TCE/RWA ratio decreased from 15.7% in 2013, mainly due to dividend payments for 2014. In line with Moody's standard adjustments for RWAs, the rating agency applies a 100% risk weighting on Vietnam government securities, which results in lower adjusted capital ratios compared to those reported by the bank.
An Binh Bank's profitability is weak, mainly because of its high loan loss provisions. The bank channeled 60%-70% of its pre-provision income into reserves in 2013-2014. Moody's expects that provisioning expenses will remain high in 2015 and 2016, as the bank gradually works out its problem exposures.
The bank's liquidity position is good, with liquid and semi-liquid assets accounting for around 50% of total assets. Its funding profile is modest, as it finances around 25% of assets with market-sensitive funding.
The bank's deposit base also has some concentrations due to large deposits from Electricity of Vietnam Group (EVN, not rated), which is one of the bank's large shareholders.
Moody's moderate systemic support assumption for An Binh Bank is driven by the bank's modest 1% share of system assets and deposits at end-2014. This results in a one notch of ratings uplift to B2, above the bank's b3 BCA. The authorities in Vietnam have demonstrated a commitment to support the banks through regulatory forbearance and restructuring.
Moody's does not incorporate any support assumptions from large shareholders into An Binh Bank's ratings, because of their relatively small ownership stakes. At end-2014, the largest shareholders were Malayan Banking Berhad (A3 positive; 20%), EVN (16.02%), Export Joint Stock Company (not rated; 12.99% stake) and the International Finance Corporation (Aaa stable; 10% stake).
COUNTERPARTY RISK ASSESSMENT
An Binh Bank's CR Assessment is positioned at B2(cr). CR Assessments are opinions of how counterparty obligations are likely to be treated if a bank fails and relates to a bank's contractual performance obligations (servicing), derivatives (e.g., swaps), letters of credit, guarantees and liquidity facilities. Senior obligations represented by the CR Assessment will be more likely preserved in order to limit contagion, minimize losses and avoid disruption of critical functions.
What Could Change the Rating Up/Down
Material improvements in the bank's asset quality metrics and profitability could lead to a ratings upgrade. In addition, a material increase in its capital buffer would be positive for the ratings.
The ratings could be downgraded if the bank's asset quality deteriorates to such an extent that potential credit losses almost fully deplete its loss absorbing buffers. A significant deterioration in liquidity metrics would also be negative for the rating.
Furthermore, a high credit growth appetite that is materially above the system average could translate into a ratings downgrade or change in outlook to negative.
The one notch of rating uplift due to government support could be withdrawn if we see a lower commitment from the authorities to support and restructure the banking system.
The principal methodology used in these ratings was Banks published in March 2015. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.
Taking into account today's announcement, the new ratings are as follows:
An Binh Commercial Joint Stock Bank
- The local currency and foreign currency long-term deposit ratings of B2 were assigned; Outlook stable
- The local currency and foreign currency long-term issuer ratings of B2 were assigned; Outlook stable
- The BCA and Adjusted BCA of b3 were assigned
- The long-term and short term counterparty risk assessments of B2(cr)/NP(cr) were assigned
- The local currency and foreign currency short-term deposit ratings of NP were assigned
- The local currency and foreign currency short-term issuer ratings of NP were assigned
Headquartered in Ho Chi Minh City, Vietnam, An Binh Bank had total assets of VND66 trillion as of 30 June 2015 (around $2.95 billion).
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.
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