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The banking system in Vietnam will continue to face the challenge of problem assets in the medium term even though the outlook for some major lenders is positive, the credit rating firm Moody's has said.
Moody’s recently upgraded long-term credit ratings and baseline credit assessments (BCA) for two Vietnamese commercial banks namely Military Commercial Joint Stock Bank (Military Bank) and Saigon-Hanoi Commercial Joint Stock Bank (SHB).
Five other lenders -- Vietnam Bank for Industry and Trade (Vietinbank), Vietnam International Bank (VIB), An Binh Commercial Joint Stock Bank (ABB), Asia Commercial Bank (ACB) and Vietnam Technological and Commercial Joint Stock Bank (Techcombank) -- were given “stable” long-term credit like before, but their BCAs moved up a notch.
Saigon Thuong Tin Commercial Joint Stock Bank (Sacombank), on the other hand, was not given an upgrade.
Moody’s is still waiting to assess the Bank for Foreign Trade of Vietnam, better known as Vietcombank.
Despite these overall positive ratings, Moody’s said that the banking system in Vietnam remains undercapitalized against the backdrop of rapid credit growth and a high share of legacy problem assets, which are not always adequately disclosed on the banks’ balance sheets.
The company said these challenges will continue to persist in the medium term, despite some improvements.
Previously in September, Moody’s has upgraded its ratings for the Vietnamese banking system's macro profile from "Weak-" to "Weak".
The specter of toxic debt has been looming over Vietnam’s economy since 2012 when total bad debts, mostly in the real estate sector, hit VND280 trillion ($12.5 billion), equivalent to a staggering 11 percent of gross domestic product.
In 2013, Vietnam set up an asset management firm to buy bad debts from troubled banks. The Vietnam Asset Management Company since then has tackled with VND211 trillion or $9.4 billion of bad debts from the books of local banks.
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