Singapore, March 06, 2018 — Moody’s Investors Service says that the full-year 2017 results for the 14 Vietnamese banks that Moody’s rates show that asset quality improved moderately year-over-year. Profitability also improved, driven by robust macroeconomic conditions and growth in core income.
By contrast, capitalization deteriorated because of rapid asset growth and cash dividends. And, the banks’ funding profiles weakened mildly, as they increased their reliance on market-sensitive liabilities — mainly borrowings from other banks — to fund loan growth with cheap short-term funding sources.
“For 2018, we expect that the banks will continue to improve their asset quality and profitability, while capitalization will weaken,” says Eugene Tarzimanov, a Moody’s Vice President and Senior Credit Officer.
“But the credit profiles of banks with stronger capital buffers and lower asset risks will be further distanced from the other banks,” says Rebaca Tan, a Moody’s Analyst.
Moody’s analysis is contained in its just-released report titled “Banks — Vietnam: 2017 results show widening divergence in asset quality and profitability performance,” and is co-authored by Tarzimanov and Tan.
On asset quality in particular, Moody’s says that the improvement in 2017 versus 2016 was helped by problem asset recoveries and write-offs, as well as credit growth. The asset weighted-average problem loans ratio at the 14 rated banks fell to 5.7% at the end of 2017 from 6.7% the year before.
Notably, four banks fully wrote off Vietnam Asset Management Company bonds that they had received in exchange for problem assets, and Moody’s expects more such write-offs in 2018.
Problem loan coverage ratios also improved, although they are still at levels which are weak by international standards.
Moody’s says that the banks’ asset quality will improve further in 2018, due to recoveries, but rapid credit growth could mask asset risks.
With profitability, Moody’s points out that the banks’ asset weighted-average return on assets rose to 0.9% in 2017 from 0.7% in 2016. Profitability will continue to improve in 2018, on the back of the same factors that drove up profitability in the prior year; in particular, robust macroeconomic conditions and growth in core income.
As for capitalization, the asset weighted-average ratio of tangible common equity to total assets for the banks slipped to 5.5% in 2017 from 5.7% in 2016, pressured by declines at government-owned banks, in particular.
Nevertheless, some banks, such as Vietnam Prosperity Jt. Stock Commercial Bank (B2 stable, b3), Vietnam Technological and Commercial Joint Stock Bank (B2 stable, b2), and Ho Chi Minh City Development JSC Bank (B2 stable, b3), strengthened their capital bases through the sale of new shares.
Moody’s expects that more Vietnamese banks will increase capital by issuing new shares in 2018. But overall capitalization levels will remain under pressure over the next 12 months from credit growth and dividend payments.
Moody’s explains that in terms of funding, the banks’ funding profiles weakened moderately, as seen by the system-wide asset weighted-average loans-to-deposits climbing to 86% in 2017 from 85% in 2016. This trend could continue in 2018, because loan growth remains rapid.
Subscribers can access the report at