The Bank for Foreign Trade of Viet Nam's (Vietcombank) B1 issuer rating and stable outlook are underpinned by its baseline credit assessment (BCA) of b2. — VNS Photo

HA NOI (Biz Hub) — The Bank for Foreign Trade of Viet Nam's (Vietcombank) B1 issuer rating and stable outlook are underpinned by its baseline credit assessment (BCA) of b2.

This was the highest BCA among banks that Moody's rates in Viet Nam (B1, stable), Moody's Investors Service said on August 3.

According to Moody's, the BCA reflects in turn Vietcombank's above-peer financial fundamentals on a standalone basis.

"Vietcombank's strong legacy franchise as a trade-oriented state-owned bank, with leading positions in trade finance, foreign exchange and international settlement, has provided a competitive advantage and attracted a superior client base that has supported its asset performance," Daphne Cheng, a Moody's analyst, said.

"Liquidity represents another key strength of Vietcombank," Cheng said. "Structurally, the bank will continue to benefit from its strong deposit franchise and its role in the national payments system."

Moody's analysis is contained in its just-released report on Vietcombank, entitled "Strong Funding Franchise and Client Base to Support Gradual Shift in Loan Mix," and is authored by Cheng.

Cyclically, Moody's expects Vietcombank to grow its loan book at or below the system average, as it shifts increasingly to smaller borrowers. This situation will further boost its liquidity position.

Moody's said Vietcombank's stronger liquidity and funding metrics were key factors driving its BCA to a level above that of its closest peer, Viet Nam Bank for Industry and Trade (Vietinbank, B1 stable, b3).

Moody's report points out that Viet Nam's sustained economic growth should continue to support Vietcombank's large corporate borrowers and maintain the bank's good asset performance.

Moody's report also says that Vietcombank's modest capitalisation is its key weakness.

Nevertheless, the bank has kept loan growth rates closely in line with the industry average, which should help alleviate pressures from capital consumption. Moody's therefore sees the bank's recently announced capital raising plan as an upside risk that could raise its Tier 1 ratio to 10.1 per cent by the end of 2016, from a projected 7.7 per cent compared with a reported 8.5 per cent for the quarter ended March 31, 2016.

On the bank's high growth rates in retail loans since 2011, Moody's says that this development poses underwriting risks and could lead to an accumulation of unseasoned loans. Nonetheless, such risks are mitigated by the bank's conservative approach to bad debt management. — VNS