Fitch has affirmed the long-term issuer default rating (IDR) for Agribank, VietinBank and Vietcombank at “B+” and for Asia Commercial Bank and Military Bank at “B”.

In a report released on Thursday, Fitch’s outlook for the five banks was stable.

The affirmations reflect Fitch's view that banking sector performance will remain stable, with support from continued strong economic growth.

“We believe pressure on asset quality and capital from rapid loan growth will be offset by benign operating conditions, earnings retention and periodic capital funding,” Fitch said.

However, it said: “Problem loans remain understated in our view. There is a risk that current rapid credit growth may be a source of future asset quality problems, despite strong economic growth lowering the drag of legacy problem loans.”

Fitch said it expects profitability headwinds to continue due to margin compression and high impairment charges; however, these are mitigated by continued strong growth in higher-margin retail loans.

The rating agency also expects system funding and liquidity to remain steady. However, bank profits, asset quality and liquidity could be affected if rising US interest rates lead to renewed depreciation of the Vietnamese dong and an increase in dollarisation.

The long-term IDRs of Agribank, Vietinbank and Vietcombank are driven by Fitch's expectation that Government support will be forthcoming, if needed, as the entities are systemically important and majority-owned by the Government.

The viability ratings of Vietinbank and Vietcombank reflect their limited balance sheet buffers relative to the size of their problematic assets, weak financial performance and high loan concentration risk, especially in State-owned enterprises (SOEs). The viability ratings also incorporate their strong domestic franchises, which focus on commercial and corporate lending, and their stable funding profiles.

Fitch believes these two State-owned banks have an advantage over private banks in times of stress, as depositors are likely to have more confidence in a majority State-owned bank. The loan/deposit ratios of Vietinbank and Vietcombank stood at 103 per cent and 80 per cent, respectively, as of end-June 2016.

Fitch did not assign a viability rating to wholly Government-owned Agribank.

The long-term IDRs of ACB and Military Bank were driven by their viability ratings and reflected their smaller franchises but better loan quality compared with State-owned banks. Fitch believes the capital encumbrance of ACB and Military Bank from under-reporting of non-performing loans is lower compared with State-owned banks.

ACB's ratings reflect its stable credit profile. Its loan quality is likely to be better than most of its peers given its much lower loan concentration risk with small exposure to SOEs - 1.1 per cent of total loans until end-2016. The reported non-performing loan ratio was 0.9 per cent until end-2016 (2015 was 1.7 per cent).

Military Bank's ratings reflect its franchise as one of Viet Nam's largest private banks. Fitch said it expects the bank to continue generating stronger profitability than peers, supported by its higher net-interest margins and more favourable cost structure. Fitch expects capitalisation ratio of 13.4 per cent at end-September 2016 to stay above the majority of its local peers, notwithstanding the bank's above-industry loan growth.

“Our assessment also captures Military Bank's adequate liquidity profile -- with loan/deposit ratio of 73 per cent at end-June 2016 -- and its strong government ties.”

The stable outlooks on ACB and Military Bank reflect Fitch's expectation that their risk profiles will be maintained over the near- to medium-term amid macroeconomic stability in Viet Nam. 

VNS