Fitch Ratings has upgraded the Long-Term Issuer Default Ratings (IDRs) and revised the Support Rating Floors of three Vietnamese State-owned banks following its upgrade of Vietnam’s sovereign rating on May 14.
The agency has upgraded IDRs of Vietnam Bank for Industry and Trade (VietinBank), Bank for Foreign Trade of Vietnam (Vietcombank) and Vietnam Bank for Agriculture and Rural Development (Agribank) to ‘BB-’ from ‘B+’. The outlooks on the State-owned banks have been revised to ‘Stable’ from ‘Positive’ to mirror a similar revision to the sovereign’s outlook.
At the same time, Fitch has revised the Support Rating Floors of Military Bank (Military Bank) and Asia Commercial Bank (ACB) to ‘B-’ from ‘NF’ (No Floor).
The Viability Ratings of VietinBank, Vietcombank, Military Bank, and ACB were not part of this review.
According to the agency, the upgrades of the IDRs on VietinBank, Vietcombank, and Agribank are driven by the upward revisions of their Support Rating Floors. The revisions reflect the improving sovereign profile, characterised by Vietnam’s improving macroeconomic performance, declining debt levels and rising external buffers that should enhance the State’s ability to provide extraordinary support to the banks, if needed.
The Support Ratings for the three State-owned banks have been upgraded to ’3′ from ’4′ for the same reason.
Fitch expects government support will be forthcoming given the banks’ high systemic importance and the government’s controlling stakes. They are among the top four Vietnamese banks by assets and have large domestic franchises.
The IDRs and Support Rating Floors are one notch below the sovereign’s as Fitch believes the large size of the banking industry relative to gross domestic product (GDP) and the government’s still-limited resources, albeit improving, may hamper the timeliness of support.
The Support Rating Floor revisions on Military Bank and ACB similarly reflect the sovereign’s improving ability to provide extraordinary support. However, the banks’ Support Ratings have been left unchanged at ’5′.
The rating actions on these privately-owned banks indicate that State support may be possible but cannot be relied upon. The banks’ franchises are smaller with market shares of around 3 percent of system assets, compared with the 9 percent-12 percent for the State-owned banks.
The Support Ratings and Support Rating Floors of all five rated Vietnamese banks are sensitive to perceived changes in the State’s ability and propensity to provide extraordinary support.
In the case of Vietinbank, Vietcombank, and Agribank, subsequent movement in the sovereign ratings would likely affect their support-driven IDRs.
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