The ratings agency has maintained a stable outlook for Vietnam’s banking system since December 2014. According to a report titled “Banking system outlook -- Vietnam: Resilient economic growth drives stable outlook” which was released on December 1, the stable outlook (B1 stable) of Vietnam’s banking system is based on the Moody’s Investors Service’s assessment of five drivers: operating environment (stable); asset quality and capital (stable/deteriorating); funding and liquidity (stable); profitability and efficiency (stable); and systemic support (stable).
Under operating environment, Moody’s expects Vietnam’s economy to show resilient growth, supported by robust exports and foreign investment. Moody’s forecasts Vietnam’s real GDP growth will remain strong, with a growth of 6.1 percent in 2016 and 6.0 percent in 2017. Stable inflation and interest rates will support domestic demand and household consumption, Moody’s added.
For asset quality and capital assessment, Moody’s forecasts that asset quality will remain stable but weak, while capital buffers will continue to deteriorate because of high loan growth. The ratings agency said that the banks’ high credit growth is outpacing internal capital generation and sources of external capital are limited.
According to an estimate of Moody’s, problem loan ratio of rated banks is estimated at 3.8 percent. This estimation is based on non-performing loans classified in categories 3 to 5 under Vietnam Accounting Standards (VAS), plus special mention loans classified in category 2 under VAS. However, including the gross value of assets sold to the Vietnam Asset Management Company raises the problem assets ratio to 7.1 percent as on June 30, 2016, from 6.9 percent in end 2015.
With regard to funding and liquidity, Moody’s informed that the system liquidity is tightening moderately because rapid lending growth is not matched by deposit growth. The average loan to deposit ratio of Moody’s-rated banks was reported to increase to 81 percent as of June 30, 2016 from 79 percent in end 2015.
However, low inflation and the Government’s de-dollarisation policy support a stable environment for the funding of local currency deposits, Moody’s noted. At the end of 2015, market funds financed 19 percent of assets, down from 23 percent in 2012. Lower levels of inter-bank funding have also decreased the risk of contagion.
According to Moody’s, profitability of the banks is expected to remain stable but low as credit costs offset higher pre-provision income. Net interest margins should show a slight compression because of the high level of competition in the banking system. Although loan growth has shifted to the higher-yielding consumer and small- and medium-size enterprise segments, deposit rates have increased. Bottom-line profitability will remain stable because higher pre-provision income will be offset by elevated credit costs.
Moody’s also predicted that the Government support will not change. The agency assumes that systemic support will be forthcoming for State and private banks, in case of need. The Government’s capacity for capital injection to banks is limited, and support will mainly be in the form of liquidity assistance and regulatory forbearance.
There are 14 banks in Vietnam which are rated by Moody’s. The Moody’s - rated banks account for 56 percent of the Vietnam’s banking system assets on June 30, 2016. Three of the 14 banks - JSC Bank for Investment and Development of Vietnam (BIDV; B1 local-currency deposit rating, stable), JSC Bank for Foreign Trade of Vietnam (Vietcombank; B1 local-currency deposit rating, stable) and Vietnam Joint Stock Commercial Bank for Industry and Trade (Vietinbank; B1 local-currency deposit rating, stable) - are government controled, while the other 11 are privately owned joint-stock banks.
Mr. Daphne Cheng, an analyst of Moody’s: The banks’ balance sheet buffers are weak because of the size of their legacy problem assets. But while legacy loan levels remain elevated, transparency in relation to such problem assets has improved. Moreover, Vietnam’s rapid economic growth will improve the recovery prospects of the banks’ legacy problem assets and stabilise asset risks.
