"Preliminary FY08 data shows some slight deterioration in loans quality. The central bank's official NPLs ratio stood at 3.5% of system loans under Vietnamese Accounting Standards; however, impaired loans under International Financial Reporting Standards are no doubt considerably higher than this," notes Sabine Bauer, Director in the agency's Financial Institutions team. In 2008, Vietnam underwent a bout of high inflation (peaking at 28% in August) following years of very strong loans growth (as well as buoyant domestic and external demand) compounded by high commodity prices. To address the issue, the central bank raised policy rates dramatically and took other measures. Given these factors, loans growth came to a halt in H208, and in late-2008/early-2009, the central bank reversed tact and lowered rates; inflation appears to be abating in any case. Vietnam also experienced other difficulties in 2008, including a sharp decline in stock market and property prices, after evidence of considerable overbuilding with regards to the latter. Exporters are likely to face difficulties given slowing global demand, as are importers, given weakening domestic demand and a notable 9% depreciation of the Vietnamese Dong since end-2007. Vietnam's smaller private banks, which tend to mostly focus on SMEs, would appear more exposed than the four larger state-owned commercial banks (SOCBs; about 52% of system-wide assets at end-2008) which tend to focus on the larger, often state-owned corporates. Fitch believes that, compared to SMEs, such larger corporates are more likely to have the financial wherewithal, diversity and franchises to withstand the much more difficult economic environment. They may also benefit from direct support from the government if required. At the same time, however, the smaller banks' starting-point financials are better than the SOCBs', with less problematic loans, more capital and higher levels of pre-provisioning profitability. Furthermore, there is a concern that the SOCBs' borrowers are generally more exposed to the property development sector. Also, the SOCBs may well come under pressure from the government to support larger borrowers if required, and indeed the broader economy in general, as part of the authorities' stimulus measures - possibly resulting in an even larger level of problematic loans, albeit presumably only to be ultimately covered by the state. To gauge the extent to which those Vietnamese banks that Fitch rates are exposed to future problem loans, the agency has conducted a basic scenario analysis, assuming varying levels of NPLs (10%, 15% and 20%). While most of the banks remain solvent under the scenarios - with Asia Commercial Bank (ACB, Individual 'D'), Saigon Thuong Tin Commercial Joint Stock Bank (Sacombank, Individual 'D') and Bank for Foreign Trade of Vietnam (Vietcombank, Individual 'D') performing better than average - the analysis points to the likely need for more capital at all the banks, particularly in regards to some of the less well-capitalised/more exposed state-owned banks, including Vietnam Bank for Industry and Trade (Individual 'D/E'), Bank for Investment and Development of Vietnam (Individual 'D/E') and Vietnam Bank for Agriculture and Rural Development (Individual 'D/E').
--www.theasianbanker.com (February 27 2009)--