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Moody's places Sacombank's ratings on review, direction uncertain
Moody's Investors Service has placed on review with direction uncertain the ratings of Saigon Thuong Tin Commercial Joint-Stock Bank (Sacombank), including the bank's long-term deposit and long term issuer ratings of B3, the standalone baseline credit assessment (BCA) and adjusted BCA of caa1, and counterparty risk assessment of B2(cr). The bank's short-term ratings and counterparty risk (CR) assessment of Not Prime and Not Prime(cr) were not affected by this action.
The review is driven by the announcement by Sacombank on 1 October 2015 that it had completed the merger with Phuong Nam Commercial Joint Stock Bank (Southern Bank; not rated).
RATINGS RATIONALE
The review with direction uncertain is driven by the uncertainty of the impact of the merger on Sacombank's key financial fundamentals and risk profile. Following consolidation of Southern Bank, Sacombank would increase its asset base by around 40%, which might lead to changes in its standalone risk profile.
Recent financial reports of Southern Bank are not publicly available, hence it is impossible to assess at this stage the financial standing of that bank, and the impact of the merger on Sacombank. Moody's understands that the asset quality of Southern Bank is somewhat weaker than that of Sacombank, which could potentially lead to a higher problem loans ratio for the enlarged Sacombank.
The merger could also be negative for the capital buffer and profitability of Sacombank. According to Sacombank, the group's post-merger equity to assets ratio will amount to 7.8% at the end of 2015, which represents a decrease from 9% for Sacombank as of June 2015. The bank also estimates that post-merger profit before tax as a share of assets and equity might decrease to 0.3% and 4.4%, respectively, from 1.2% and 12% for Sacombank in 2014.
During the ratings review, Moody's will consider the effects of the merger on Sacombank's risk profile, with a focus on the quality of new assets, capital adequacy, profitability, as well as funding and liquidity. Moody's will also analyze the growth and development strategy of the bank.
The merger was executed through a share swap, whereby 0.75 share of Sacombank was exchanged against 1 share of Southern Bank.
WHAT COULD CHANGE THE RATINGS UP/DOWN
A ratings downgrade could occur if Moody's determines that Sacombank's risk profile is materially impaired by the merger, leading to a significant erosion in asset quality, substantial decrease in the tangible common equity to risk weighted assets ratio, weaker profitability and/or pressured funding and liquidity profiles.
During the review, Moody's will also explore the possible benefits of the merger for Sacombank, namely in areas such as business diversification, new revenue streams, as well as its enlarged branch network.
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 affected ratings are as follows:
Saigon Thuong Tin Commercial Joint-Stock Bank (Sacombank)
- The local currency and foreign currency long-term deposit ratings of B3; review with direction uncertain
- The local currency and foreign currency long-term issuer ratings of B3; review with direction uncertain
- The BCA and Adjusted BCA of caa1; review with direction uncertain
- The long-term counterparty risk assessment of B2(cr); review with direction uncertain
- The local currency and foreign currency short-term deposit ratings were affirmed at NP
- The local currency and foreign currency short-term issuer ratings were affirmed at NP
Headquartered in Ho Chi Mihn City, Vietnam, Sacombank had total assets of VND211 billion (around USD9.5 billion) at end-June 2015.
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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