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Announcement: Moody's maintains Sacombank's ratings on review, direction uncertain
Moody's Investors Service maintains its review with direction uncertain on 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 ratings and assessments of Vietnam-based Sacombank are on review since 9 October 2015, following the announcement by Sacombank that it had completed the merger with Phuong Nam Commercial Joint Stock Bank (Southern Bank; not rated).
The review on Sacombank is continuing until the publication of its annual consolidated financial report for 2015 that would include the operations of Southern Bank. As a result, Moody's at this stage is unable to assess the impact of the merger on Sacombank's key financial fundamentals and risk profile.
Moody's expects to conclude the review in the first quarter of 2016 following the publication and analysis of Sacombank's consolidated financial report for 2015.
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 increased 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 January 2016. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.
Taking into account today's announcement, the 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
Headquartered in Ho Chi Mihn City, Vietnam, Sacombank had total assets of VND213 billion (around USD9.5 billion) at end-September 2015.
REGULATORY DISCLOSURES
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit 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.
Please see Moody's Rating Symbols and Definitions on the Ratings Definitions page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.
Please see Moody's Rating Symbols and Definitions on the Ratings Definitions page on www.moodys.com for further information on the time horizon in which a credit rating action may be expected after a review or outlook action took place.
Please see the ratings tab on the issuer page on www.moodys.com for the last action and the history of the rating. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com/disclosures for further information.
Please see the ratings disclosure page on www.moodys.com/disclosures for disclosures on significant Moody's shareholders and on certain relationships between Moody's, its shareholders and/or rated issuers.
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.
This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.
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