Moody's on Feburary 29 confirmed Sai Gon Thuong Tin Commercial Joint-Stock Bank's (Sacombank) deposit and issuer ratings of B3. — Photo enternews.vn

HA NOI (Biz Hub) — Moody's on Feburary 29 confirmed Sai Gon Thuong Tin Commercial Joint-Stock Bank's (Sacombank) deposit and issuer ratings of B3.

The rating agency has also confirmed the bank's standalone baseline credit assessment (BCA) and adjusted BCA of caa1, as well as its counterparty risk assessment of B2 (cr).

The outlook on all ratings is stable, the rating agency reported.

This action concludes the review, with direction uncertain, initiated on October 2015, when Sacombank announced its merger with Phuong Nam Commercial Joint Stock Bank (Southern Bank).

The confirmation of Sacombank's ratings reflects Moody's review of the bank's consolidated financial report for 2015, which includes the operations of Southern Bank, and discussions with the management of Sacombank.

The consolidation of Southern Bank has resulted in an increase in Sacombank's asset base by 37 per cent. The post-merger Sacombank ranks as the largest privately-owned bank in Viet Nam by assets, and fifth largest if State-owned banks are considered.

In Moody's opinion, while the impact of the merger is negative for Sacombank's key financial fundamentals, the risks associated with the addition of Southern Bank are reflected in Sacombank's rating level of B3 and BCA of caa1.

Moody's noted that the transaction results in a higher level of problem assets for the enlarged Sacombank. Problem assets – such as non-performing loans, special mention loans, and the bonds of Viet Nam Asset Management Company (VAMC) – increased to 8.4 per cent of gross loans at end-2015, from 7.4 per cent before the merger in September 2015.

The merger also contributes to higher non-interest-generating assets, such as interest income and fees receivables, and repossessed collateral. Repossessed collateral, which is mostly real estate, increased to around 38 per cent of shareholders' equity at end-2015 from 7 per cent at end-2014.

Overall, non-interest yielding assets comprised 26 per cent of assets at end-2015, up from 15 per cent at end-September 2015. In Moody's view, these assets contribute to a lower net interest margin for Sacombank.

In addition, the capital buffer of the merged bank has weakened moderately. Its tangible common equity-to-adjusted risk weighted assets (RWA) fell to 8.2 per cent at end-2015 from 9.4 per cent at end-2014.

Sacombank's liquidity position has also weakened, with cash, money market, interbank, and available-for-sale and trading securities making up 14 per cent of total assets at end-2015, compared to 22 per cent at end-September 2015.

The inclusion of additional problem assets in the fourth quarter of 2015 resulted in a net loss of VND520 billion (US$23.6 million) in that quarter, due to new loan-loss provisions of VND1.1 trillion.

For the full year of 2015, credit costs consumed 60 per cent of pre-provision income. As a result, the return on average assets decreased to 0.4 per cent in 2015 from 1.2 per cent in 2014.

Moody's expects that Sacombank's profitability will remain weak in 2016 due to the need to create additional provisions against problem assets. — VNS