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Vietcombank and ACB protest downgrades by Fitch   2010-09-07 - VnExpress

Fitch, the credit rating agency that last month lowered its sovereign debt rating for Vietnam, now has lowered its ratings for two big banks, citing rapid growth in their outstanding loans.  Officers of both banks expressed disagreement with the ratings given to them by Fitch, and criticized the ratings agency’s failure to hear their explanations.

 

 

 
Fitch lowered its grades for the two banks, Vietcombank (VCB) and Asia Commercial Bank (ACB), from D to D/E, a level suggesting that they have serious problems that may require outside assistance.

 

Talking with VnExpress, Vietcombank DGD Pham Quang Dung called Fitch’s understanding of the Vietnamese banking system deficient.  “Fitch’s credit rating is not exact and it does not fit the real practice in Vietnam,” Dung stated. “Before Fitch officially announced its rating, we tried to contact them to explain, but they did not understand.”

 

Dung said VCB had anticipated the credit rating downgrade given by Fitch when the credit rating agency lowered the rating for Vietnam and put VCB onto its “Rating Watch Negative” list.

 

Fitch said the downgrade reflected Vietcombank’s substantially weakened balance sheet, a result of ‘excessively strong loan growth and fragile underlying loan quality.’  It called VCB’s capital adequacy ratio (CAR) ‘below the safety line.’

 

Fitch expressed its concern over VCB’s ‘overly high credit growth rate’, which reached 26 percent in 2009. Though it slowed in the first half of 2010, the state-owned bank’s five year growth rate (2006-2010) of 118 percent is considered overly high in comparison with international standards.

 

Fitch warned that VCB’s credit growth may increase further in the second half of the year, noting the Government’s credit growth target for 2010 of 25 percent.

 

The ratings agency was also skeptical that Vietcombank would meet the State Bank’s capital adequacy target of nine percent anytime soon. Though Vietcombank has increased its capital by 1120 billion dong, Fitch still believes that this is not enough to increase its CAR.  

 

Fitch further criticized VCB for delays in its plan to issue financial reports according to international standards.  It predicted that the bank’s credit quality would deteriorate futher when there is information about its loans extended to Vinashin, the financially-troubled shipbuilding group.

 

Dung, the VCB officer, says Fitch’s arguments are flawed.  International financial reporting standards are not compulsory for Vietnamese banks.  Vietcombank and BIDV have been pioneering such a report, but that work is still underway inside the bank.  It will be issued soon.

 

Dung confirmed that VCB’s CAR was only 8.45 percent at midyear, but added that procedures to increase capital always take time.  Though Vietcombank has become a joint stock bank, the State still holds a 91 percent stake.  Therefore, administration is cumbersome; unlike other joint stock banks, Vietcombank not only has to seek permission from the board of directors, but also from the Ministry of Finance, State Bank of Vietnam and the Government.

 

Moreover, Vietcombank plans to increase its capital by 33 percent, at which point its CAR will be 10.5 percent. “We tried to explain this to Fitch, but they did not accept this,” Dung said.

 

Dung explained VCB’s high credit growth rate of 26 percent in 2009 was the result of the Government’s demand stimulus programme.  The bank’s credit growth was not high, he said, if compared to the overall figure for the banking system, 40 percent.

 

Dung said the downgrade in credit rating “unreasonable” and “bad news” for  Vietcombank.  He expressed confidence that its foreign correspondent banks  will not change their view of VCB, because they are all present at Vietnam and they understand the situation better than Fitch.

 

At Asia Commercial Bank, meanwhile, an officer said the downgrade in its credit rating was no surprise, because prior to that, Fitch lowered Vietnam’s rating for medium and long term credit from BB- to B+.  In principle, the credit rating of a firm must not be higher than the sovereign credit rating.

 

ACB also pointed out that there are many problems in Fitch’s rating.  ACB too said Fitch did not ask for official information from ACB, therefore, it could not clearly see Vietnam’s banking system in general, and ACB in particular.

 

Vietnam’s credit growth rate has been relatively high in the last five years, at 34 percent per annum, while ACB’s growth rate was even higher, 55 percent per annum.  Vietnam is a developing country with rapid growth rate of 7-8 percent per annum, and economic growth depends on banks’ loans. Therefore, argues ACB, it is quite normal to see high credit growth rates.



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