Moody's extends upgrade review for VPBank and FE Credit

Moody's extends its upgrade review for VPBanks and FE Credits

The rating review was initiated on May 12 following VPBank's announcement on April 28 that it had concluded an agreement with Sumitomo Mitsui Financial Group, Inc. (SMFG, A1 stable) to sell a 49 per cent equity stake in FE Credit. The transaction is expected to close by the end of 2021. The planned sale will be to SMFG's consolidated subsidiary, SMBC Consumer Finance Co., Ltd. (SMBCCF).

Moody's is extending the review process because the transaction is pending external approvals and has therefore not yet been completed. Upon the completion of the transaction, it expects the standalone credit strengths of VPBank and FE Credit could improve, thereby placing upward pressure on their ratings and assessments.

On a pro-forma basis, VPBank's capital, as measured by tangible common equity as a percentage of risk-weighted assets, will increase to around 15 per cent from 10 per cent at the end of 2020. The bank has indicated that it will retain the proceeds from the stake sale for use on new organic growth and investment opportunities.

It is expected that FE Credit to benefit from funding, technology and risk management support from SMBCCF, which has a long history in consumer finance in parts of Asia. Currently, Moody's incorporates a very high probability of affiliate support for FE Credit from VP Bank in times of need. Moody's will reevaluate the affiliate support assumptions for FE Credit, considering the large shareholdings of SMFG and VPBank in FE Credit, as well as SMFG's involvement in setting the company's strategic direction.

Moody's could upgrade VPBank's ratings if the transaction is approved by the relevant authorities, and if the bank's capital improves as anticipated. If the transaction is not approved, Moody's will confirm VPBank's current ratings.

Moody's could also upgrade FE Credit's rating if the transaction is approved by the relevant authorities, and if the company's standalone credit strength improves as anticipated. A strong probability of support from the company's shareholders will also be positive for the ratings. If the transaction is not approved, Moody's will confirm FE Credit's current ratings and revise the outlook to stable.