Vinashin pulling down banks

The shipbuilder's woes are starting to wash over into the banking sector

On December 15, Moody’s Investors Service lowered the ratings of six Vietnamese banks following Moody’s downgrade of the Vietnamese government’s rating, to B1 from Ba3. The list consists of the Asia Commercial Bank (ACB), the Bank for Investment and Development of Vietnam (BIDV), the Military Commercial Joint Stock Bank (MB), the Saigon-Hanoi Commercial Joint Stock Bank (SHB), Techcombank (TCB) and the Vietnam International Bank (VIB).

According to Karolyn Seet, Moody’s assistant vice president and lead analyst for the Vietnamese banks, the financial difficulties of government-owned shipbuilder Vinashin and the likelihood that it would default on its foreign currency borrowings had negative implications for banks.

This change principally reflects Moody’s concern that the extent  has become unpredictable, as evidenced by the government’s apparent unwillingness to support Vinashin.

“Some have material exposure to Vinashin itself. More generally, the Vinashin episode shows that predicting government support, even for major state-owned enterprises (SOEs) in Vietnam, is challenging and this raises the potential for increasing problematic loans for SOE exposures in general,” said Seet.

All six banks’ foreign currency deposit ratings were lowered to B2 from B1 and continue to have a negative outlook, in line with the revised foreign currency deposit ceiling. This action reflects Moody’s view that the same concerns that have led to negative action on the sovereign ratings also have negative implications for the standalone credit profiles of the Vietnamese banks.

A BIDV executive told VIR that the bank would have an official response next week.

“However, I can say this downgrade does not reflect our sound banking system,” said the BIDV executive.

Seet added that all the factors  resulted in negative credit trends for the sovereign had increased the risks of Vietnam’s operating environment for the banks.

“These include the heightened risk of a balance of payments crisis, the depreciation pressure felt on the Vietnamese dong and the unconvincing policy responses to these issues,” said Seet.

On December 13, Standard & Poor’s Ratings Services also made a report saying that the debt troubles of Vinashin were likely to undermine the credit quality of Vietnam’s banking industry.

According to S&P credit analyst Ivan Tan, credit risk management and supporting infrastructure in Vietnam had not kept pace with rapid credit growth in Vietnam’s banking system.

“Vinashin has created significant uncertainty over the likelihood of a government bailout, further highlighting the importance of sound credit risk assessment based on borrowers’ fundamentals. That said, poor transparency complicates the task of performing the necessary due diligence,” said Tan.