Moody’s: Outlook for VN banking system positive

Moody’s upgrade in outlook reflects Việt Nam’s robust economic growth, supported by domestic demand, healthy exports and public sector investment. - Photo Vietinbank

HÀ NỘI — Moody’s Investors Service on Tuesday upgraded its outlook for Việt Nam’s banking system to positive for the next  一 二- 一 八 months from stable, reflecting the country’s strong economic prospects and the positive outlook for most rated banks.

"The change in outlook - which expresses our expectation of how bank creditworthiness will evolve in this system over the next  一 二- 一 八 months - reflects Việt Nam’s robust economic growth, supported by domestic demand, healthy exports and public sector investment,"大众Eugene Tarzimanov, Moody’s vice president and senior credit officer, said.

"We forecast Việt Nam’s real GDP will grow  六. 一 per cent in  二0 一 七 and six per cent in  二0 一 八, faster than the  五. 九 per cent average for the previous five years."

"Strong economic growth translates into positive conditions for banks’ asset quality, but rapid credit growth, aided by acco妹妹odative monetary policy, can raise asset risks again,公众Tarzimanov said.

According to Moody’s the banks’ operating environment will benefit from robust economic growth, based on ongoing improvements to infrastructure, favourable demographics and the government’s continued focus on reform to support foreign direct investment.

The banks’ asset quality will remain largely stable during the outlook with problem loan ratio at  七. 一 per cent at end- 二0 一 六, slightly lower than  七. 五 per cent in  二0 一 五. Moody’s further expects this ratio to decline to  五. 八 per cent in  二0 一 八, driven by loan growth outpacing the formation of problem loans and because of modest recovery in the property sector.

However,  rapid credit growth will continue to erode capital buffers and capitalisation will deteriorate as banks struggle to replenish capital against rapid loan growth. High provisioning expenses will undermine banks’ abilities to generate internal capital, while options to raise external capital are limited.

In addition, the growth in local-currency customer deposits, the main funding source for Vietnamese banks, will continue to be healthy, but it will lag behind credit growth, resulting in slightly tighter system liquidity.

Profitability will remain stable with banks’ pre-provision income growing steadily over the next  一 二- 一 八 months on the back of strong loan growth. However, the improvement will be offset by high credit costs. Net interest margins will also likely decline further due to competition and government pressure to lower bank lending rates.

At the same time, Government support notching could increase for some bank ratings. Any upgrade of the Government of Vietnam rating -- which has positive outlook -- will likely result in upgrades of a number of banks’ ratings, which in some cases could receive greater uplifts from their baseline credit assessments.

Moody’s rates  一 五 banks in Việt Nam, which together account for  五 八 per cent of banking system assets as of June  三0,  二0 一 七. Three of the  一 五 banks — Bank for Investment Development of Vietnam (B 一 positive, caa 一), Bank for Foreign Trade of Vietnam (B 一 positive, b 一) and Bank for Industry and Trade (B 一 positive, b 二) — are owned by the Government, while the other  一 二 are privately owned joint-stock co妹妹ercial banking institutions. — VNS