Ratings on Three Vietnamese Banks Raised to ’Bpi’

Ratings on Three Vietnamese Banks Raised to ’Bpi’

SINGAPORE Standard & Poor’s Nov. 21, 2002--Standard & Poor’s Ratings 

Services today revised its public information ratings on three Vietnamese 

banks to ’Bpi’ from ’CCCpi’: Bank for Foreign Trade of Vietnam 

Vietcombank, Bank for Investment and Development of Vietnam 

VietindeBank, and Industrial and Commercial Bank of Vietnam Incombank.

     The upgrades follow Standard & Poor’s assessment of the government’s 

capacity for extending support to the 100% state-owned banks, together 

with the recent release of the banks’ financial results for fiscal year 

ended Dec. 2001.

     The ratings incorporate both the banks’ stand-alone credit profiles and 

the degree of support from the Vietnamese government, the banks’ sole 

owner. Although Standard & Poor’s assessment of the degree of implicit 

support from the government for the banks remains unchanged, Standard & 

Poor’s has, since its assignment of sovereign ratings on the Socialist 

Republic of Vietnam local currency BB/Stable/B; foreign currency 

BB-/Stable/B in May 2002, been better able to gauge the government’s 

capacity for extending support to the banks.

     Standard & Poor’s is awaiting the release of the 2001 results of Vietnam 

Bank for Agriculture and Rural Development VBARD; ’CCCpi’ before 

reassessing its ratings on this state-owned bank.

     The banks have stand-alone credit profiles that remain weak, reflecting 

the high-risk operating environment in Vietnam where regulation is not 

rigorous, risk-management systems are poor by international standards, and 

there is a weak legal infrastructure that is not supportive of creditors. 

The poor disclosure of information highlights a high degree of information 

risk surrounding the banks’ profiles.

     Asset quality is likely to remain a key concern, considering the legacy 

of Vietcombank, VietindeBank, and Incombank’s loan books as state-owned 

banks that are subject to public policy lending, and could involve 

financing projects that are not commercially viable. The ratio of 

nonperforming loans NPLs at these banks would be considerably higher if 

asset quality measures were calculated on an internationally accepted 

basis and in line with Standard & Poor’s measurement of problem loans that 

includes not only loans on three-month overdue basis, but also 

restructured assets and foreclosed properties. At year-end 2001, Incombank 

and Vietcombank’s published NPL ratio fell by more than one-third to 5.3% 

and 14.4%, respectively.

     Furthermore, the banks’ provisions are expected to be inadequate, and 

historically have been determined as a percentage of net income, rather 

than the probability and severity of loss. By local convention, loan-loss 

reserves are included as part of total capital, a method that is not in 

line with Standard & Poor’s capital criteria calculations.

     Capitalization is weak, as denoted by the average adjusted common 

equity-to-assets ratio of the three banks of 2.6% at end 2001. Going 

forward, the state-owned banks will have to look to the government for 

recapitalization funds considering that the ability to internally generate 

capital is not likely to improve significantly in the short term.