Moody’s Investors Service on Friday affirmed major ratings for two Vietnamese banks, BIDV and Martitime Bank.

Moody’s has upgraded the baseline credit assessment (BCA) and adjusted BCA of BIDV to B3 from CAA1. — Photo BIDV

Accordingly, local currency bank deposits’ rating and local and foreign currency issuer ratings of BIDV have been affirmed at B1/Not Prime. Moody’s also affirmed BIDV’s foreign currency bank deposits rating at B2/Not Prime.

At the same time, Moody’s has upgraded the baseline credit assessment (BCA) and adjusted BCA of BIDV to B3 from CAA1.

Moody’s has also affirmed BIDV’s counterparty risk assessment (CR Assessment) at B1(cr)/Not Prime(cr).

The outlook on BIDV’s B1 local currency bank deposits and local and foreign currency issuer ratings remains positive, in line with the positive outlook on Viet Nam’s sovereign rating. The outlook on the bank’s foreign currency bank deposits rating remains stable, because the rating is constrained by the B2 foreign currency deposit ceiling for Viet Nam.

The affirmation of BIDV’s local currency bank deposits rating and local and foreign currency issuer ratings takes into account the one-notch upgrade of its BCA and adjusted BCA to B3, and a two-notch uplift to reflect Moody’s assumption that the bank will receive support from the government of Viet Nam (B1 positive) in times of need.

The upgrade of BIDV’s BCA takes into account the stabilisation in the bank’s asset quality, as well as improvements in the bank’s funding profile.

On the same day, Moody’s has also affirmed Maritime Bank’s local and foreign currency bank deposits and issuer ratings at B3/Not Prime, BCA and Adjusted BCA at caa1, and counterparty risk assessment (CRA) of B2(cr)/Not Prime(cr). The rating outlook for the bank remains positive.

The affirmation of the CAA1 BCA reflects the elevated risks in MSB’s balance sheet, namely its large share of assets that Moody’s considers problematic. As of September-end 2017, the bank’s problem loan ratio was among the highest within the universe of Moody’s rated Vietnamese banks. Moody’s defines problem loans as the sum of loans in categories 2-5 under Vietnamese accounting standards and gross bonds issued by the Vietnam Asset Management Company (VAMC).

Profitability remains constrained due to the bank’s high share of low yielding assets in its balance sheet, coupled with very high credit costs. On balance, the BCA also considers MSB’s high capital levels and sound liquidity position.

The positive outlook on the supported ratings reflects the bank’s committed and ongoing efforts to resolve its legacy problem assets, which should lead to improved asset quality and profitability metrics. 

Given the large size and very concentrated nature of these legacy accounts, and the bank’s positive expectations around recoveries, this could lead to meaningful improvements in asset quality in 2018. 

Material recoveries of impaired assets could significantly improve the bank’s solvency profile. — VNS