Fitch Affirms Vietnam's BIDV at Individual 'D/E'

Fitch Ratings on July 16 affirmed Bank for Investment and Development of Vietnam's (BIDV) Individual rating at 'D/E' and Support rating at '4'.

 

BIDV's Individual Rating reflects its limited balance-sheet strength, concentration risks on sector loans and single-name deposits, and the challenging/volatile environment it operates in. It also factors in improved underlying profitability, good disclosure and the bank's solid franchise (benefiting from its state-owned status). Fitch assumes a limited probability of external support as the government, despite an almost certain willingness, may be constrained by a lack of resources.

 

"We consider BIDV to be one of Vietnam's more advanced banks in terms of commercial orientation and risk management. Its Individual Rating has upward potential if the bank continues to strengthen these areas alongside materially stronger capitalisation," notes Sabine Bauer, Director in Fitch's Financial Institutions team. "That said, significantly higher NPLs and subsequently weaker capital may trigger a downgrade," adds Ms. Bauer.

 

Loan quality has notably improved, but special mention loans remained at a high 20 percent of loans at FYE08. In addition, even though BIDV grew at a slower pace than the banking sector in 2005-2008 (by an average 23 percent per year versus the sector's 34 percent), Fitch expects credit costs to increase as Vietnam's trade-dependent economy faces lower global demand. Furthermore, subsidised stimulus lending is providing artificially cheap loans to customers who may not be able to repay in 2009/2011 if interest rates rise.

 

BIDV's total regulatory CAR (based on Vietnamese Accounting Standards) stood at a low 8.2 percent at end-H109 (2008: 8.9 percent). Capital, applying IFRS, is notably lower due to additional impairment allowances, but BIDV aims for a minimum total CAR (IFRS) of 8 percent prior to its partial IPO via retained earnings and subordinated capital.

 

BIDV is Vietnam's second-largest bank (with 13 percent of system-wide assets at FYE08). It had 13,100 staff at FYE08. Following two other state-owned peers' partial IPOs, the government plans to privatise up to 30 percent of BIDV, including 20 percent to strategic/financial investors; this is most likely to take place in H110. (Fitch's Press Release)