Illustrative image (Photo: vneconomy.vn) Hanoi (VNS/VNA) - Moody's Investors Service has placedthe long-term ratings and assessments of three Vietnamese finance companies andtwo Vietnamese banks on review for downgrade.
The finance companies are VPBank Finance Company Limited (FECredit), Home Credit Vietnam Finance Company Limited (HCV), and SHBANK FinanceCompany Limited (SHB Finance).
The banks are Vietnam Prosperity Joint Stock Commercial Bank(VP Bank), which fully owns FE Credit, and Saigon Hanoi Commercial Joint StockBank (SHB), which fully owns SHB Finance.
According to Moody’s, the rapid and widening spread of theCOVID-19 outbreak, deteriorating global economic outlook, falling oilprices and asset price declines are creating a severe and extensive creditshock across many sectors, regions and markets. The consumer finance industryin Vietnam is vulnerable to the disruptions given its risky borrower profileand heavy reliance on wholesale funding.
“Moody's regards the coronavirus outbreak as a social riskunder its Environmental, Social, and Governance (ESG) framework, given thesubstantial implications for public health and safety.
"Today's action reflects the impact on Vietnameseconsumer finance companies and their parent banks of the breadth and severityof the shock, and the deterioration in credit quality it has triggered,” theinternational rating agency said.
The review for downgrade of FE Credit, HCV and SHB Financereflects Moody's expectation that the pandemic could have a negative impact onthe companies' asset quality, profitability and liquidity.
Moody’s review for downgrade on VP Bank takes intoconsideration the negative implications of a potential deterioration in thecredit profile of FE Credit for the group. While loans extended by FE Credit accountedfor only 22 percent of the consolidated loan book, the consumer financesubsidiary is a key revenue driver, contributing to about 43 percent of thegroup's profit before tax in 2019.
Outside of VP Bank's exposure to consumer finance, Moody'salso expects pressure on the quality of its loans to at-risk sectors, includingwholesale and retail, and export and tourism-related sectors.
Moody's expects a deterioration in SHB Finance's creditprofile will only have a modest impact on its parent, SHB, as the subsidiaryaccounted for just 1 percent of consolidated total assets at the end of June2019.
However, while SHB's asset quality improved in 2019 followinga sizeable resolution of its legacy problem assets, the review for downgrade onthe ratings and assessments of SHB reflects Moody's expectation that the bank'sloans to small and medium-sized enterprises (SMEs) in Vietnam – whichaccounted for 31 percent of gross loans at the end of 2019 – will poserenewed asset risk, as these SMEs have limited financial buffers to withstandrevenue shocks. Compared to other Vietnamese banks, SHB's loan lossreserves and capitalisation are weak and will provide little buffers againstrising risks.
For FE Credit, HCV and SHB Finance, Moody's review fordowngrade will focus on the companies' ability to manage credit and liquidityrisk amid disruptions from the pandemic.
The review will also focus on the effectiveness of domesticand global policy responses in supporting economic activity, and whetherthe spread of the virus will result in further disruptions to economicactivity in Vietnam.
Moody's could downgrade the ratings if the companies'solvency and liquidity profile weaken materially.
For VP Bank and SHB, Moody's review for downgrade will focuson the quality of the banks' consumer finance loans as well as loans toborrowers operating in industries directly affected by the coronavirus outbreak.
Moody's could downgrade the ratings and assessments if thebanks' baseline credit assessments (BCAs) are downgraded. TheBCAs could be downgraded if the banks' solvency weakens as a result of aprolonged outbreak of the coronavirus. Any indication of a bank run or alimited access to market funds will also be negative for the banks' BCAs./.
The finance companies are VPBank Finance Company Limited (FECredit), Home Credit Vietnam Finance Company Limited (HCV), and SHBANK FinanceCompany Limited (SHB Finance).
The banks are Vietnam Prosperity Joint Stock Commercial Bank(VP Bank), which fully owns FE Credit, and Saigon Hanoi Commercial Joint StockBank (SHB), which fully owns SHB Finance.
According to Moody’s, the rapid and widening spread of theCOVID-19 outbreak, deteriorating global economic outlook, falling oilprices and asset price declines are creating a severe and extensive creditshock across many sectors, regions and markets. The consumer finance industryin Vietnam is vulnerable to the disruptions given its risky borrower profileand heavy reliance on wholesale funding.
“Moody's regards the coronavirus outbreak as a social riskunder its Environmental, Social, and Governance (ESG) framework, given thesubstantial implications for public health and safety.
"Today's action reflects the impact on Vietnameseconsumer finance companies and their parent banks of the breadth and severityof the shock, and the deterioration in credit quality it has triggered,” theinternational rating agency said.
The review for downgrade of FE Credit, HCV and SHB Financereflects Moody's expectation that the pandemic could have a negative impact onthe companies' asset quality, profitability and liquidity.
Moody’s review for downgrade on VP Bank takes intoconsideration the negative implications of a potential deterioration in thecredit profile of FE Credit for the group. While loans extended by FE Credit accountedfor only 22 percent of the consolidated loan book, the consumer financesubsidiary is a key revenue driver, contributing to about 43 percent of thegroup's profit before tax in 2019.
Outside of VP Bank's exposure to consumer finance, Moody'salso expects pressure on the quality of its loans to at-risk sectors, includingwholesale and retail, and export and tourism-related sectors.
Moody's expects a deterioration in SHB Finance's creditprofile will only have a modest impact on its parent, SHB, as the subsidiaryaccounted for just 1 percent of consolidated total assets at the end of June2019.
However, while SHB's asset quality improved in 2019 followinga sizeable resolution of its legacy problem assets, the review for downgrade onthe ratings and assessments of SHB reflects Moody's expectation that the bank'sloans to small and medium-sized enterprises (SMEs) in Vietnam – whichaccounted for 31 percent of gross loans at the end of 2019 – will poserenewed asset risk, as these SMEs have limited financial buffers to withstandrevenue shocks. Compared to other Vietnamese banks, SHB's loan lossreserves and capitalisation are weak and will provide little buffers againstrising risks.
For FE Credit, HCV and SHB Finance, Moody's review fordowngrade will focus on the companies' ability to manage credit and liquidityrisk amid disruptions from the pandemic.
The review will also focus on the effectiveness of domesticand global policy responses in supporting economic activity, and whetherthe spread of the virus will result in further disruptions to economicactivity in Vietnam.
Moody's could downgrade the ratings if the companies'solvency and liquidity profile weaken materially.
For VP Bank and SHB, Moody's review for downgrade will focuson the quality of the banks' consumer finance loans as well as loans toborrowers operating in industries directly affected by the coronavirus outbreak.
Moody's could downgrade the ratings and assessments if thebanks' baseline credit assessments (BCAs) are downgraded. TheBCAs could be downgraded if the banks' solvency weakens as a result of aprolonged outbreak of the coronavirus. Any indication of a bank run or alimited access to market funds will also be negative for the banks' BCAs./.
VNA
