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S&P, Moody's issue credit ratings for Sacombank   2012-02-14 - VNS

Major international credit rating agencies Standard&Poor's and Moody's announced credit ratings for HCM City-based Sacombank for the first time last Friday.

S&P assigned Sacombank a ‘B+' long-term rating and ‘B' short-term counterparty credit rating. The outlook on the long-term rating was stable, reflecting S&P's view that Sacombank would maintain its financial profile despite challenging conditions and high inflation.

Sacombank had a "strong" business position, "weak" capital and earnings, "adequate" risk position, "above-average" funding, and "adequate" liquidity, according to S&P.

S&P assessed the bank's standalone credit profile to be ‘B+'.

"Sacombank's position as the second largest privately-owned bank in Viet Nam supports its business position," said S&P credit analyst Ivan Tan. "We believe the bank's management will temper loans growth with prudent risk management."

Tan noted Sacombank's established franchise in the consumer and small- and medium-sized enterprise segments.

"We consider Sacombank's management to be progressive, with a focused retail strategy," he said. "We assess Sacombank's diversity to be generally adequate."

The bulk of the bank's revenues came from plain-vanilla lending products, he added.

"Like most of its peers, it is domestically focused and the bulk of its revenues come from lending."

Sacombank's ratio of loans to customer deposits was 76 per cent as of September, better than the industry in general and good in comparison with larger banks with more extensive branch networks. This strength reflected Sacombank's effective use of its network to attract retail deposits.

The bank's liquid assets (consisting of cash, interbank loans receivable and government bonds) were also sufficient to cover short-term wholesale borrowing.

S&P expected the bank's strong business position and funding profile to support the ratings.

"We could upgrade Sacombank if it sustainably improves its profitability and capitalisation, such that they are notably better than in 2010," Tan said. "Continuous improvements in the bank's risk management and operating processes so that they are in line with international best practices could also trigger an upgrade."

S&P might lower the ratings if Sacombank bad debt levels increase sharply, operating performance is poor, or capitalisation weakens substantially, he said.

Meanwhile, Moody's assigned ratings of B2 (not-prime) to Sacombank's long- and short-term foreign currency deposits and B1 (not-prime) to its long- and short-term local currency deposits. It gave the bank a long- and short-term foreign and local currency issuer rating of B1.

Moody's assigned Sacombank a Bank Financial Strength Rating (BFSR) of E+.

The outlook for all ratings was stable, except for the foreign currency deposit and issuer ratings which carried negative outlook, reflecting the overall negative outlook on Viet Nam's foreign currency, Moody's said.

The ratings reflected Sacombank's tightened liquidity, moderate risk absorption capacity, and moderate single-borrower concentrations versus global peers, as well as uncertainties surrounding its shareholding structure and share buy-back plans and inherent challenges in Viet Nam's operating environment.

Moody's analysis also took into account the strengths of the bank's credit profile, particularly the quality of its franchise as the sixth-largest bank in Viet Nam by asset-size and the one with the largest network of branches and ATMs in the country.

They also noted its diversified loan portfolio, with the consumer sector accounting for about a third of its loans, and lower problem loans compared with the average for the Vietnamese banking sector, supported by above-average loan-loss reserve coverage.

"Its sizable and stable core deposit base accounted for nearly 60 per cent of its funding at the end of 2010, with a profile mainly in local currency," Moody's reported.

"This concern is somewhat offset by the fact that short-term assets formed 27 per cent of total assets at the end of 2010. Strong liquidity is an important factor in emerging markets like Viet Nam, where deposits can be highly sensitive to investor confidence."

Its profitability was modest due to worsening economic conditions, and the ratio of pre-provision profits to average risk-weighted assets was 2.6 per cent in 2010, above the median for regional banks rated E+ on Moody's BFSR scale.

Fees and commissions, insurance, dividend, and treasury income together accounted for 23 per cent of the bank's income, Moody's noted.

Sacombank may not be able to sustain its good financial metrics over the medium term due to the lack of portfolio diversification and the challenging operating environment, characterised by high inflation and a tightening monetary policy, Moody's said.

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