A customer uses consulting service at Vietnam International Bank. Moody's upgraded the ratings of Viet Nam International Bank (VIB)'s B2 deposits and E+/b3 BFSR/BCA by one notch. — Photo Kinh Luan

HA NOI (Biz Hub) — The credit quality of Vietnamese banks has improved, thanks to the combination of macroeconomic stability and improved governance, Moody's said on Thursday.

In a report entitled "Stabilising trend for the macro environment will help Vietnamese banks address problems in asset quality," the rating agency said that the key drivers have prompted some credit differentiation among Vietnamese banks, albeit at modest levels, as reflected by Moody's positive rating actions on six banks recently.

On September 22, Moody's upgraded the ratings of Viet Nam International Bank (VIB)'s B2 deposits and E+/b3 BFSR/BCA by one notch, while affirming the ratings of five banks and changing their outlooks to positive at the same time. The five banks are Military Commercial Joint Stock Bank (Military Bank), Sai Gon Thuong Tin Commercial Joint-Stock Bank (Sacombank), Viet Nam Technological and Commercial Joint Stock Bank (Techcombank), Asia Commercial Bank (ACB) and Viet Nam Prosperity Bank (VP Bank)

"The recent positive rating actions on Vietnamese banks were primarily driven by the stabilisation in the operating environment in the country, which is positive for banks because it supports the recovery of their poor asset quality, provides stability to their deposit bases, and improves their business prospects," says Eugene Tarzimanov, Moody's Vice President and Senior Credit Officer.

"Additionally, some Vietnamese banks have also improved their governance standards and lowered their risk appetites, thereby improving their credit underwriting standards," adds Tarzimanov.

Moody's report provides insight into the Vietnamese banks' individual strategies and on the steps taken to improve governance, highlighting that some of them have made more adjustments than others in response to the adverse market conditions since 2011. These developments, when taken together with macroeconomic stabilisation, have reduced the incidence of new problem assets on their balance sheets, and have also improved the recovery prospects for problematic legacy assets.

However, Moody's report also says that the banks' credit profiles and ratings will improve only if the underwriting standards and capital-generation capacities also improve significantly, and if the banks allocate more profits to provisioning and writing-off of problem assets.

Moody's report notes that Viet Nam's economic growth has recovered somewhat from the trough reached in 2012, and the country has managed to stabilise inflation at historically low levels. This achievement has allowed the State Bank of Viet Nam to decrease its policy rates to promote economic growth. For example, the refinancing rate fell to 6.5 per cent earlier this year from 15 per cent in early 2012.

Moody's says that lower interest rates are positive developments for Vietnamese banks because they decrease the debt burden of their borrowers and lead to some improvements in the real estate market.

Supportive macroeconomic conditions, including stable inflation and exchange rates, and weak loan demand have improved the liquidity of the entire banking system. As deposit growth outpaced loan growth, the system's loan-to-deposit ratio improved to 82 per cent in June 2014, from 87 per cent in June 2013. — VNS