Moody’s Investors Service has upgraded the long-term local and foreign currency deposit and issuer ratings of Vietnam Maritime Commercial Joint Stock Bank (MSB) to B1 from B2, a result of upgrades in the bank’s Baseline Credit Assessment (BCA) and Adjusted BCA to b2 from b3.
The upgrade of MSB’s BCA and long-term issuer and deposit ratings reflects (1) improvements in the bank’s asset quality due to its full resolution of outstanding Vietnam Asset Management Company (VAMC) bonds in 2020 and lower credit concentration in the riskier real estate sector; (2) improving profitability because of higher net interest margin (NIM) and lower credit costs; and (3) stable core capital, which Moody’s expects will remain stable in the next 12-18 months.
MSB’s adjusted problem loans ratio, which includes nonperforming loans and VAMC bonds, declined to 2% in 2020 from 4.4% in 2019, while its exposure to real estate loans decreased to 16% of gross loans at the end of 2020 from 36% at the end of 2019. A remaining risk factor for asset quality is the bank’s large exposure to other assets such as receivables and repossessed collateral, some of which are problematic.
The bank’s return on tangible assets increased to 1.1% as of the end of 2020 from 0.7% as of the end of 2019, as NIM expanded 88 basis points to 3.22%. Tangible common equity to adjusted risk-weighted assets ratio under Basel II stood at 8.9% as of the end of 2020.
MSB remains highly reliant on market funding, which made up 38% of tangible banking assets at the end of 2020. However, this risk is mitigated by its high level of liquid assets, which accounted for 44% of tangible banking assets as of the same date.
MSB’s issuer and deposit ratings benefit from one notch of public support, based on Moody’s expectation of a moderate probability of support from the Government of Vietnam (Ba3 positive), based on MSB’s modest market share of 1.3% in banking system assets as of September 2020 and the central bank’s track record of providing support to banks in the form of liquidity support and regulatory forbearance measures.
Moody’s could upgrade the MSB’s BCA and ratings if the bank shows (1) a material and sustained improvement in its asset quality and/or meaningful resolution of its legacy foreclosed assets and other receivables; (2) a material and sustainable improvement in its core profitability to support its loan portfolio expansion; and (3) sustained improvement in capitalization.
Moody’s could downgrade the bank’s ratings and BCA if (1) its asset quality deteriorates significantly; (2) there is a rapid erosion of its capital because of high loan growth or significant credit losses.
Vietnam Maritime Bank is headquartered in Hanoi, Vietnam, with reported total assets of VND176.7 trillion as of December 2020.
