Moody's Investors Service has upgraded the long-term local and foreign currency deposit ratings of the Saigon Thuong Tin Commercial Joint-Stock Bank (Sacombank) to B3 from Caa1, with a stable outlook.

It upgraded the lender's baseline credit assessment (BCA) and adjusted BCA to caa1 from caa2.

According to the international credit rating organisation, the upgrade of Sacombank's BCA and deposit ratings considered the improvements made by it in resolving a large part of its legacy problem assets through recoveries. Funding and liquidity are moderate, but have also improved after deteriorating in 2015 following the merger.

Social and economic challenges last year did not affect the bank’s restructuring or business, and almost all progression milestones in the restructuring plan were achieved.

Its total consolidated assets as of December 31, 2020, were worth nearly VND493 trillion (US$21.38 billion), an increase of almost 10 per cent from a year earlier, of which profitable assets increased by 13 per cent. Total deposits topped VND447 trillion ($19.38 billion), with the structure of the deposit portfolio increasingly diversifying and with average deposit terms being longer than in previous years.

Sacombank’s liquidity and deposit mobilisation capacity has always been strong thanks to its extensive business network and a sustainable individual customer base.

It is less dependent on capital sources that are sensitive to market fluctuations, and Moody's expects Sacombank's core capital, as measured by tangible common equity as a percentage of risk-weighted assets, to remain lower than the average for other rated banks in Viet Nam.

Sacombank’s liquidity score was at B3 since 2017. In fact, its liquidity increased by more than 80 per cent in 2020. The prudential ratios always ensure compliance with the limit set by the State Bank of Vietnam.

Moody's has removed the negative adjustment for opacity and complexity because improved disclosures provide greater clarity about the bank's ownership structure and corporate governance.

The ability to collect non-performing loans as recognised by Moody’s was a big challenge for the bank when the volume of problem assets was large and the ratio of total problem assets as a percentage of credit provisions and tangible common equity was at a very high level post-merger.

This affected Moody’s credit rating decision.

Thanks to adopting flexible strategies in dealing with problem assets over the past years, Sacombank has dramatically reduced the ratio to 151 per cent as of year-end 2020 from 384 per cent in 2017 and 415 per cent in 2016.

The bank collected over VND15.2 trillion ($629.27 million) worth of bad debts, reducing the NPL ratio to 1.6 per cent in 2020.

Its ratings could be upgraded if its BCA is upgraded through a significant resolution of its problem assets through recoveries or write-offs and getting the SBV’s approval to increase capital. — VNS