(Repeat for additional subscribers)
Sept 23 (The following statement was released by the rating agency)
Fitch Ratings says in a new report that the major Vietnamese banks' risk profiles will
remain vulnerable in view of the country's below-par economic performance, high asset-quality
risks, poor transparency and slow pace of banking restructuring, alongside persistent global
Stable macro policies since early 2011 have led to lower volatility in interest
rates, exchange rates, and inflation. Sustaining a broadly steady backdrop
raises the chances of a banking-sector recovery. However, state-led reforms have
been slow; in part because the authorities probably fear exacerbating problems
in an already fragile economy. Fitch forecasts Vietnam's GDP growth to rise
modestly to around 5.5% in 2014-2015 (2013: 5.0%) - low relative to the
country's record over the last decade. Efforts to spur domestic demand have not
been effective as banks and borrowers are wary of an uncertain operating
environment. Reported loan growth was just 6% in the year to August 2013 (2012:
Fitch expects any recovery in the banking system to be gradual, depending on the
pace and effectiveness of reforms, and regulatory discipline. The Vietnam Asset
Management Company (VAMC) may not tackle many of the asset-quality issues in the
near term because some aspects of its operations are still unclear and
regulatory rules to improve asset-quality data transparency have been delayed
until June 2014. Banking consolidation and reform of state-owned enterprises are
likely to progress slowly over the medium-term.
Vague non-performing loan (NPL) transparency and tough economic conditions still
pose impairment risks to major banks. VAMC could remove bad debt from banks but
not losses. A "true" level of the NPL ratio (say 15% relative to the reported
3%-4%) and an 80% loss rate would cut core Tier 1 capital adequacy ratio (CAR)
of large lenders to about 1% from the reported 10% at end-June 2013. This,
together with pressure on banks' asset quality and profit generation, underlines
the need for fresh capital, which Fitch believes will be hard to acquire,
especially for small and medium-sized banks. Restrictive foreign ownership laws
deter foreign investment while there may not be much investor appetite locally
because of the uncertain domestic economy.
Downside rating risks could arise if the operating environment becomes even more
challenging and threatens banks' solvency, a loss in depositors' confidence
occurs, and/or if there is a negative rating action on the sovereign. The
Outlook is Stable, however, because the banks' ratings in the single 'B'
category already factor in such vulnerabilities, and in light of the Vietnamese
sovereign's Stable Outlook.
The report titled "2014 Outlook: Vietnamese Banks" is available on
www.fitchratings.com or by clicking on the link below.
Link to Fitch Ratings' Report: 2014 Outlook: Vietnamese Banks