Vietnamese banks on topsy-turvy road between profitability and capitalization: Moody’s

By Ngan Anh   March 6, 2018 | 04:48 pm GMT+7
Vietnamese banks on topsy-turvy road between profitability and capitalization: Moody’s
An employee holds stacks of cash at a bank in Vietnam. Photo by VnExpress/Anh Quan

This trend could continue in 2018 due to rising demand for credit.

Vietnamese banks’ asset quality and profitability have improved but their capitalization has deteriorated, according to Moody's Investors Service.

Asset quality and profitability were boosted by robust macroeconomic conditions and growth in core income, according to the credit ratings agency’s report issued on Tuesday.

Moody's said that asset quality improved in 2017 thanks to asset recoveries and write-offs, as well as credit growth. The asset weighted-average problem loans ratio at 14 rated banks fell to 5.7 percent at the end of 2017 from 6.7 percent the previous year.

In terms of profitability, Moody's said that the banks' asset weighted-average return on assets rose to 0.9 percent in 2017 from 0.7 percent in 2016.

By contrast, capitalization deteriorated because of rapid asset growth and cash dividends. The banks' funding profiles weakened mildly, as they increased their reliance on market-sensitive liabilities — mainly borrowings from other banks — to fund loan growth with cheap short-term funding sources.

"For 2018, we expect that the banks will continue to improve their asset quality and profitability, while capitalization will weaken," said Eugene Tarzimanov, Moody's vice president and senior credit officer.

"But the credit profiles of banks with stronger capital buffers and lower asset risks will be further distanced from the other banks," said Rebaca Tan, a Moody's analyst.

Moody's said that the banks' asset quality will improve in 2018, due to recoveries, but rapid credit growth could mask asset risks. Meanwhile, profitability will increase on the back of the same factors that drove profitability in the last year; robust macroeconomic conditions and growth in core income.

Moody's expects more Vietnamese banks will increase their capital by issuing new shares in 2018. But overall capitalization levels will remain under pressure over the next 12 months from credit growth and dividend payments.

 
 
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