“The outlook [which has been in place since November 2014] expresses our expectations of how banks’ creditworthiness will evolve in this system over the next 12-18 months,” Moody’s said in its latest report on Vietnam’ banking system outlook.
The credit rating agency pointed out that the operating environment for Vietnamese banks has been benign in the past two years, after a sharp deterioration in 2012 that followed several years of very rapid credit growth.
Rapid economic growth improves the recovery prospects for legacy problem assets and supports Vietnamese banks’ new business expansion. In addition, increasing foreign direct investments, a large current account surplus, and a policy preference for stability over growth have all contributed to improved conditions for the banks, it added.
Moody’s estimated that total problem loans averaged around 9% for rated banks as of June 2015. The figure includes non-performing and special-mention loans, loans sold to the Vietnam Asset Management Company (VAMC
), and problem loans classified as receivables.
The bad debt ratio in the Vietnamese banking system was reported at 3.72% at the end of June and 2.93% as of September 2015, according to the State Bank of Vietnam.
Moody’s said it maintained a negative view on the banks’ capitalization and profitability, which will remain depressed by high loan-loss provisions. By contrast, stable net interest margin (NIM) and fees will support pre-provision income.
“We expect that government support would be forthcoming for state and private banks in case of need, in the form of forbearance and liquidity assistance. The SBV has been taking over failed banks instead of putting them through receivership or bankruptcy. We see this as a sign that the authorities are wary of potential system contagion if banks, even small ones, are allowed to fail,” the agency noted.
The Vietnamese banking system’s asset-weighted baseline credit assessment is caa1. This is two notches below the asset-weighted average long-term bank deposit rating of B2, which means the ratings on average incorporate a two-notch uplift based on systemic support considerations.
Source: Moody’s, banks’ financial reports, State Bank of Vietnam