Moody’s upgrades outlook for VN’s banking system

13:47 | 11/12/2014

VGP – Moody’s Investors Service has recently revised its outlook for the Vietnamese banking system to stable from negative, reflecting the increased stability in the operating environment for the banks, as well as in Viet Nam’s macro-economic situation, and a reduction in liquidity stress in the system.

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The credit ratings agency published “Banking System Outlook Viet Nam.”

“Improvements in macro-economic stability have led to strengthened systemic liquidity,” said Moody’s Vice PresidentGene Fang, adding that deposit growth has recently improved, driven by government policies targeted at reducing gold and foreign currency deposits.

The report — whose outlook expresses Moody’s expectation of how bank creditworthiness will evolve in this system over the next 12-18 months — looks at Viet Nam’s banking system in terms of five factors: Operating environment (which is classified as stable); funding and liquidity (improving); asset quality and capital (deteriorating); profitability and efficiency (deteriorating); and systemic support (stable).

Moody’s report points out that the operating environment for Vietnamese banks has begun to stabilize, after a spell of weakness from 2012 that followed several years of very rapid credit growth. Inflation and domestic interest rates have moderated significantly over the past two years from double-digit levels, and pressure on the exchange rate has subsided.

Moody’s report also says that while recent improvements in regulatory standards have improved the prospects for a potential recovery in bank solvency, the large amount of remaining problem loans suggests that any recovery will be a gradual process.

In addition, the banks’ loan loss reserves and capital are likely insufficient to absorb potential losses on problem assets. Moreover, options for capital raising are limited, due to the banks’ weak internal capital generation capacity, constraints on the government budget, and restrictions on foreign investment in banks.

Moody’s rates nine joint-stock commercial banks in VietNam. As of June 30 2014, these banks together accounted for almost 40% of system assets. The banks’ weighted average baseline credit assessment is caa1, while their average standalone bank financial strength rating is E.

The system weighted average local currency deposit rating is B2, reflecting Moody’s assessment of a moderate to high probability of support from the Government of Viet Nam (B1 stable)./.

By Kim Loan