Fitch: Vietnamese banks’ ratings reflect heightened risks

Posted on October 24, 2012

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KUALA LUMPUR (Oct 24): Major Vietnamese banks’ ratings largely reflect difficult domestic operating conditions and other structural issues typically found in low-income emerging markets, according to Fitch Ratings.

In a statement Wednesday, Fitch said that the outlook was stable, reflecting that the banks’ ratings in the single ‘B’ category were already among the lowest in Asia as well as the Vietnamese sovereign’s stable outlook.

Fitch continues to believe that reported non-performing loans [NPLs] are understated which, together with poor transparency, mean that banks’ capitalisation would be much weaker than reported

“Downside rating risks could arise if the operating environment becomes even more challenging than Fitch’s current expectations and significantly threatens banks’ solvency, and/or due to negative rating action on the sovereign,” it said.

In its report entitled 2013 Outlook: Vietnamese Banks, Fitch forecast Vietnam’s GDP growth at around 5% for 2012 and around 5.8% for 2013, lower than the 7% average over 2004-2011.

It said regulatory efforts at cutting interest rates and capping lending rates had done little to support investor sentiment, with credit growth of only 2% in January to September 2012.

This together with governance issues, persistent global uncertainties and high levels of corporate leverage — evident in the country’s credit/GDP of 113% at end-2011 — continues to weigh on the domestic economy, it said.

“The banking system is vulnerable to macroeconomic shocks, with pressures already mounting on asset quality, earnings and capital of the major Vietnamese banks,” said the ratings agency.

“Fitch continues to believe that reported non-performing loans [NPLs] are understated which, together with poor transparency, mean that banks’ capitalisation would be much weaker than reported.

“Around half of banks’ capital could be at risk, based on the central bank’s public admission that the system-wide NPL ratio could be as high as 10%,” it said.

Fitch said it believed the actual figure was higher and could weaken given the downside risks from a materially weaker economic environment.

Structural issues, including deposit competition and fragile confidence, may keep loan/deposit ratios over or close to 100% for most major Vietnamese banks, it said.

“There has been little perceptible progress on Vietnam’s banking system reforms, such as banking sector consolidation and the establishment of an asset management company to acquire bad debt from banks.

“Local authorities have also mentioned concurrent reforms surrounding state-owned entities and investments in Vietnam, but meaningful progress here has proved elusive,” it said.

Yahoo