Fitch Ratings on Wednesday revised the outlooks on the long-term issuer default ratings (IDRs) of Vietinbank to positive from stable. — Photo cafef.vn

Fitch Ratings on Wednesday revised the outlooks on the long-term issuer default ratings (IDRs) of three State-owned Vietnamese banks – Vietinbank, Vietcombank and Agribank – to positive from stable.

At the same time, the agency has affirmed the long-term IDRs on the banks at 'B+'.

The outlooks have been revised following a revision in the Vietnam sovereign's outlook to positive from stable on May 18, which takes into account Vietnam's strong macroeconomic performance and improvement in the country's external stability indicators.

“The improvements are reflected in persistent current-account surpluses, manageable debt-service costs and sustained foreign direct investment inflows,” Fitch said.

The outlook revision on the three banks' IDRs reflects Fitch's view of improving sovereign ability to provide extraordinary support, if needed.

The long-term IDRs of Agribank, Vietinbank and Vietcombank are driven by Fitch's expectation that the Government support will be forthcoming, if needed, in light of their high systemic importance and the Government's controlling stakes. They are among the top four Vietnamese banks by assets and have strong domestic franchises.

The banks' IDRs and support rating floors are a notch lower than Vietnam's sovereign rating (BB-/Positive) as Fitch believes the large size of the banking industry, relative to GDP, and the Government's limited resources may hamper the timeliness of support.

The 'B-' viability ratings of Vietcombank and Vietinbank reflect their limited balance sheet buffers relative to the size of their problematic assets, their weak financial performance and high loan concentration risk in State-owned enterprises (SOEs). The viability ratings also consider their solid domestic franchises and their stable funding profiles.

Fitch does not assign a viability rating to wholly Government-owned Agribank. The bank's role in providing support to the domestic economy has a high influence on its standalone profile and makes it likely that Agribank will continue to benefit from regulatory forbearance.

The long-term IDRs, support ratings and support rating floors of Agribank, Vietinbank and Vietcombank are sensitive to movements in the sovereign's ratings, which are currently on a positive outlook.

An upgrade of the sovereign ratings would likely lift the banks' support-driven ratings. The banks' ratings may also be affected by any perceived change in the Government's propensity to support the banks.

Fitch may take positive rating action on the banks' viability ratings if structural issues, such as corporate governance, bad-debt resolution and thin capitalisation, are more adequately addressed, leading to greater transparency and, together with sustained strong economic performance, continued improvements in the banks' overall credit profiles.

Viability ratings may be pressured if excessive growth or an increased loan concentration leads to significant impairment risks and weakened balance sheets.

Downward pressure for Vietinbank may be higher given its low capital ratio and higher SOE loan concentration risk. — VNS