Vietnam lenders shrug off Fitch downgrades

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Two of the nation's leading lenders, Vietcombank and Asia Commercial Bank, have been downgraded by Fitch Ratings, but both the banks and experts are unfazed.

Fitch Ratings last week downgraded the two banks to "D/E" from "D", citing risks related to strong credit growth as the main reason.

Fitch said in its statement that the downgrade "reflects Vietcombank's substantially weakened balance sheet arising from excessively strong loan growth and fragile underlying loan quality." The bank, Vietnam's third largest lender, could also be hit by its exposure to the troubled state-owned Vietnam Shipping Industry Group, Fitch said.

The credit rating agency expected Vietcombank, along with other local banks, to continue to "face a difficult environment."

Fitch also found the loan growth at Asia Commercial Bank (ACB) excessive, saying this would put pressure on its liquidity and loan quality. "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."

The agency estimated that by the end of this month, the ACB's capital adequacy ratio would be lower than the new regulatory minimum of 9 percent.

However, both ACB and Vietcombank protested the downgrade, saying that Fitch had made its assessment based on information published by the media, and that it was not in Vietnam, where it could "have a better look."


Ly Xuan Hai, chief executive of ACB, said Vietnam's credit growth averaged 34 percent a year over the past five years, and during the period loans expanded by 55 percent a year at his bank


The rates were normal considering that the economy grew between 7.5 and 8 percent a year on average, driven mainly by the banking system rather than the stock market, Hai said.

He said Fitch's worry about strong credit growth hurting liquidity showed it was being "overcautious."

"ACB has always had high liquidity. Its current loan-todeposit ratio is 56 percent versus the 74 percent ratio claimed by Fitch."

Hai said Fitch was also concerned about high growth in foreign currency loans that could affect the bank's liquidity and loan quality. However, he affirmed that the foreign currency loans were mainly offered to exporters or creditworthy clients, which means the risk was very low.

Vietcombank Deputy General Director Nguyen Thu Ha said Fitch was being negative in assessing local banks.

She said foreign investors in Vietnam will not depend on Fitch's assessments as they have a more objective opinion of the economy.

Pham Quang Dung, another deputy general director, told the local online newspaper VnExpress that Vietcombank's high credit growth of 26 percent last year was due to a government's stimulus program that subsidized lending interest rates for businesses.

"Even though it was high compared with other banks in the world, we lost our market share with that rate in Vietnam," he said, noting that the credit growth rate for the industry last year was nearly 40 percent.

Dung also said the bank has received approval to raise its capital by VND4 trillion, a move which would increase its capital adequacy ratio to 10.5 percent from the current 8.45 percent.

No surprise

Although both Vietcombank and ACB protested Fitch's assessment, they said they found the new ratings unsurprising because Fitch had already downgraded the country's credit rating from "BB-" to "B+" four levels below investment grade a month ago.

Le Xuan Nghia, vice chairman of Vietnam's National Financial Supervisory Commission, also told Tuoi Tre newspaper that it was not a big surprise to see Fitch downgrade two leading banks in Vietnam. "The individual rating of a business cannot be higher than the rating of the country where it operates," he said.

However, Nghia said, Fitch is not always accurate in its assessments. He said ACB has been the best partly-private bank in Vietnam, both before and after the financial crisis.

He said local banks would have to raise their capital to meet safety requirements this year. ACB and Vietcombank have large capital holdings and are preparing to increase them further to meet international standards, he said, adding credit ratings like Fitch's are for reference only.

"In general, the prospects for Vietnam's economy are bright and the banking system is stable," he said.

Nguyen Canh Thinh, brokerage manager at Ho Chi Minh City Securities Corporation, said in an interview with VnExpress on Monday that Fitch's downgrade of the banks will not have any major impact on the market in the short term. The stock market rose after the decision, he noted.

"The downgrade, however, will have certain effects on banks in the medium term, especially when they call for investment. On a larger scale, foreign organizations may be more concerned about Vietnam's financial market.

"To be fair, the Vietnamese banking system has improved, and is catching up with regional and international standards step by step," Thinh said.

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