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Fitch upgrades Military Bank, affirms four other banks’ IDRs
Minh Tuan
Friday,  Mar 2, 2018,22:14 (GMT+7)

Fitch upgrades Military Bank, affirms four other banks’ IDRs

Minh Tuan

A customer transacts with Agribank. Fitch Ratings has upgraded the long-term issuer default rating (IDR) of Military Bank to ‘B+’ from ‘B’ with a stable outlook and its viability rating to ‘b+’ from ‘b’ while affirming the IDRs of Agribank, VietinBank, Vietcombank and ACB - PHOTO: UYEN VIEN

HCMC - Fitch Ratings, a global leader in credit ratings and research, has upgraded the long-term issuer default rating (IDR) of Military Commercial Joint Stock Bank (Military Bank) to ‘B+’ from ‘B’ with a stable outlook and its viability rating to ‘b+’ from ‘b’ while affirming the IDRs of Agribank, VietinBank, Vietcombank and ACB.

The long-term IDRs of Vietnam Bank for Agriculture and Rural Development (Agribank), Joint Stock Commercial Bank For Foreign Trade of Vietnam (Vietcombank) and Vietnam Joint Stock Commercial Bank for Industry and Trade (VietinBank) have been affirmed at ‘B+’ with a positive outlook while the IDR of Asia Commercial Joint Stock Bank (ACB) has been affirmed at ‘B’ with a stable outlook.

The agency has also upgraded the viability ratings of Vietcombank and VietinBank to ‘b’ from ‘b-’.

The positive rating action takes into account the Vietnamese banking system’s enhanced operating environment, with improved economic policy-making from authorities promoting macroeconomic stability and predictability. This has enabled banks to significantly reduce their exposure to legacy problem loans that have long weighed on their balance sheets and address the banking system’s long-standing structural weaknesses such as thin capital buffers and weak profitability over the longer term.

The upgrade of Military Bank’s viability rating and long-term IDR takes into account its higher capital levels than its peers and its continued asset quality improvement, as reflected in its more diversified loan composition and declining problem-loan ratio. The bank’s Fitch Core Capital ratio of 11.4% in end-June 2017 was the highest among that of Fitch-rated Vietnamese banks.

Fitch expects Military Bank to continue generating higher profitability than peers, supported by a wider net-interest margin and leaner cost structure, which has aided its internal capital generation. The bank’s operating profit/risk-weighted assets ratio of 2.3% is likely to stay above that of the majority of local peers. The bank’s loan/deposit ratio increased to 88% at end-June 2017 due to rapid loan growth.

The long-term IDRs of Military Bank and ACB are driven by their viability ratings and reflect their smaller franchises but better loan quality compared with State-owned banks. Fitch believes the capital encumbrance of ACB and Military Bank from under-reporting of non-performing loans is lower compared with State-owned banks.

ACB’s ratings also reflect its improving asset quality and profitability profile. Its loan quality is likely to be better than most of its peers given its much lower loan concentration risk, with a small 1% exposure to State-owned enterprises at end-June 2017. The bank’s problem loan ratio improved significantly after writing off its entire bad debt sold to Vietnam Asset Management Company (VAMC) in 2017.

Fitch expects ACB’s improving profitability to continue in the near term, as legacy problem exposures are mostly provisioned for and the full resolution of bad debts sold to VAMC should alleviate its credit cost burden.

The stable outlooks on Military Bank and ACB reflect Fitch’s expectation that their asset quality and profitability profiles will be maintained over the near- to medium-term amid macroeconomic stability in Vietnam.

The upgrade of Vietcombank and VietinBank’s viability ratings reflects the banks’ improvement in asset quality. This was supported by the benign operating environment and strong retail loan growth. Vietcombank’s full resolution of bad debts sold to VAMC in 2016 will lower its credit cost burden.

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