HCMC – Bank for Foreign Trade of Vietnam (Vietcombank) and Asia Commercial Bank (ACB) have seen their rating downgraded to ‘D/E’ from ‘D’ by the international credit rating agency Fitch, which cited risks related to strong credit growth.
Fitch in its statement says that the downgrade reflects Vietcombank’s substantially weakened balance sheet arising from excessively strong loan growth and fragile underlying loan quality.
Furthermore, Fitch believes Vietcombank’s individual rating remains under pressure, due to increasing risk of high credit costs arising from underlying weak loan quality and limited capitalization.
Also, Fitch expects Vietcombank, along with other local banks, to continue facing a difficult environment, particularly given the Vietnamese Government’s weakening ability to manage inherently volatile market conditions when needed.
Vietcombank reported loan growth of 26% in 2009, which decelerated to 12.7% year-on-year in the first half this year, resulting in the aggregate growth of 118% between 2006 and mid-2010. However, Fitch notes that there is a risk of Vietcombank’s loan growth accelerating in the second half, given the Government’s strong encouragement to grow credits by up to 25% in 2010 as a means of supporting economic growth.
The same reason has been given for the downgrade on ACB’s Individual Rating to ‘D/E’ from ‘D’. Fitch estimates that, by end-September 2010, ACB’s capital adequacy ratio (CAR) would be lower than the new regulatory minimum of 9% that is effective from October 1.
ACB maintained its excessive loan growth in the first half this year with a 42% year-on-year increase. Fitch says that the bank’s target for 2010 is 54%, which implies a likely acceleration in lending in the second half this year, and that, if achieved, would equate to growth of 464% during 2006 - 2010.
ACB plans to raise equity capital by VND1.6 trillion and issue bonds worth VND3 trillion by end-October 2010. However, Fitch expects the bank’s capitalization to be insufficient in maintaining strong loan growth for a higher market share, and to adequately cushion against potential high credit costs.
Fitch also affirms Individual Rating at ‘D/E’ and ‘E’ for two State-owned banks namely the Bank for Investment and Development of Vietnam (BIDV) and Bank for Agriculture and Rural Development of Vietnam (Agribank), respectively.
The downgrade sparked protests from Vietcombank.
Pham Quang Dung, deputy general director of Vietcombank, told the local online newspaper Vnexpress that Fitch made assessment based on information released by the bank while the agency was not here to understand the reality of Vietnam.
Dung said the bank had got approval from the Prime Minister to spur capital by VND4 trillion that would make Vietcombank’s CAR rise to 10.5% from the current 8.45%.
“We have explained this situation to Fitch but they did not take it,” he added.
Commenting on high credit growth last year, Dung said that was due to the Government’s subsidized lending program and Vietcombank’s outstanding loans increased only 26% compared to the industry-wide growth rate of nearly 40%.
Although such a credit growth rate is high compared to international standard, Vietcombank still faced the threat of losing its market share in Vietnam, he said.
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