BizLIVE - Fitch Ratings has revised the outlook on the Long-Term Issuer Default Ratings (IDRs) of two state-owned banks and a wholly foreign-owned bank in Vietnam to Stable from Positive, and the outlooks for two joint stock commercial banks to Negative from Stable. 
Vietnamese Banks' Rating Outlooks Lowered on Coronavirus Impact
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These actions stem from the sharply lower - albeit positive - growth that Vietnam faces from the coronavirus pandemic and its potential to negatively affect the banks' credit profiles in the near term, at least. The IDRs of all five banks were affirmed at existing levels as we expect a firm economic recovery in 2021, although there will be lingering effects on the banks.
Fitch's economic forecasts are outlined in Fitch Ratings Coronavirus Scenarios: Baseline and Downside Cases, dated 2 April 2020 and our latest rating action commentary on the Vietnam sovereign in Fitch Revises Outlook on Vietnam to Stable; Affirms at 'BB', dated 8 April 2020. Details on the rating actions taken on each bank can be found in the individual RACs published on 16 April 2020.
The affected banks are:
Vietnam Joint Stock Commercial Bank for Industry and Trade (Vietinbank)
--IDR: 'BB-'; Outlook revised to Stable from Positive; Viability Rating (VR) downgraded to 'b-' from 'b'
Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank)
--IDR: 'BB-'; Outlook revised to Stable from Positive
ANZ Bank (Vietnam) Limited (ANZV)
--IDR: 'BB'; Outlook revised to Stable from Positive
Asia Commercial Joint Stock Bank (ACB)
--IDR: 'B+'; Outlook revised to Negative from Stable
Military Commercial Joint Stock Bank (MB)
--IDR: 'B+'; Outlook revised to Negative from Stable
Vietnam's GDP growth slowed to 3.8% in 1Q20 from 7.0% in 4Q19 and Fitch forecasts full-year growth at 3.3%, which would be slowest pace since the first year of the Doi Moi reforms in 1987. The sharp economic shock will cause unemployment to rise and can quickly tip Vietnam's large proportion of informal workers and micro business owners into severe financial hardship.
In response, the State Bank of Vietnam (SBV) cut its policy rates and directed banks to extend debt relief to affected borrowers, while easing requirements on loan classification and provisioning. As a result, the banking sector has become a key intermediary - and will likely bear much of the policy burden - of financial relief.
Fitch has lowered Vietnam's operating environment midpoint to 'b+' from 'bb-', but kept the outlook at stable as we expect the slowdown to be sharp before a sizeable recovery in 2021, with growth forecast at 7.3%. The sudden loss of economic momentum that banks in Vietnam have grown accustomed to in recent years will most directly affect their asset quality and earnings. Moreover, risk appetite, capitalisation and governance scores could also be lowered should pressure for banks to undertake policy lending manifest in large scale non-risk-based lending.
The outlook on the asset quality factor has been lowered to negative from stable for all Vietnamese banks to which we assign a VR. Brewing asset-quality stresses, even if not all are reported as impaired during the relief period, mean there are deferred credit impairments accruing. The negative outlook also considers banks' rapid credit growth in recent years, especially in consumer loans and unsecured lending, which have not been tested through a down cycle. Some banks' credit allowances have lagged their dash for market share, such that loss-absorption buffers remain thin at many banks. More than a few banks continue to hold Vietnam Asset Management Company bonds - a legacy of bad debt from the 2010-11 downturn.
We expect profitability to come under significant pressure due to waning credit demand and lower lending rates after the SBV's rate cuts and authorities' orders to reduce debt burden for affected borrowers. Deposit rates have not declined as quickly as term deposits reprice with a lag and banks typically put a floor under real interest rates to compete for depositors' funds. The resultant margin compression, slower credit growth, and lower fee incomes mean banks have lower core earnings to buffer against anticipated increases in credit costs. Our outlook on the banks' profitability is negative.
Thin capital buffers are another area of weakness that Fitch has been wary of, with some major banks still struggling to comply with local Basel II requirements. The outlook on most Fitch-rated banks' capitalisation factor score is stable as we expect banks to be sufficiently profitable to support slower balance-sheet growth. The exception is Vietinbank, which has fallen behind original Basel II implementation timelines. 
Vietinbank's capitalisation outlook is negative, reflecting our assessment of its weaker asset quality than domestic peers. Lower retained earnings driven by worse credit stresses or higher risk-weighted asset growth due to policy lending will pressure capital ratios and could prompt a downward revision of the outlook for other banks too. We view SBV's directive for banks to not distribute cash dividends as a credit positive.
Our assessment of banks' funding and liquidity has not changed materially as a result of the coronavirus. Our expectations of slower credit growth and highly accommodative liquidity management from the SBV have kept the factor outlook at stable. We believe the SBV will continue to provide liquidity to the system as directed by the government.
The private commercial banks' rating Outlooks could revert to Stable should economic conditions turn more benign and allow banks' financial profiles to recover to pre-pandemic levels. This would also lead us to have a more favourable view of banks' standalone credit profiles. Conversely, should credit stresses in the system become more pronounced and exceed our base case expectations of continued bank profitability, the banks' capitalisation would deteriorate and prompt a downgrade of their ratings.
State-owned banks' IDRs are support-driven and their rating outlooks tend to mirror that of the sovereign. ANZV's IDR is also capped by the sovereign and Country Ceiling. A sustained record of macroeconomic stability and an improvement in public finances may put the sovereign rating back on an upward trajectory, which will have a correspondingly positive effect on the banks' ratings and outlooks, assuming system leverage does not increase materially.

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