Rating Action: Moody's confirms ratings of five Vietnamese financial institutions, concludes review

Global Credit Research - 22 Jul 2020

Singapore, July 22, 2020 -- Moody's Investors Service has confirmed the long-term ratings and assessments of three finance companies and two banks in Vietnam.

The three finance companies are VPBank Finance Company Limited (FE Credit), Home Credit Vietnam Finance Company Limited (HCV), and SHBANK Finance Company Limited (SHB Finance).

The two banks are Vietnam Prosperity Joint Stock Commercial Bank (VP Bank), which fully owns FE Credit, and Saigon - Hanoi Commercial Joint Stock Bank (SHB), which fully owns SHB Finance.

With the exception of VP Bank's long-term foreign currency deposit rating which is on a negative outlook, the outlook on all other ratings of the finance companies and banks, where applicable, are stable.

Moody's rating action concludes the review for downgrade initiated on 07 April 2020.

A list of all affected ratings and assessments is provided at the end of this press release.

RATINGS RATIONALE

CONFIRMATION OF FE CREDIT, HCV AND SHB FINANCE'S RATINGS

The confirmation of FE Credit, HCV and SHB Finance's ratings takes into account Moody's expectation that solvency and liquidity risks caused by the coronavirus is mitigated by (1) early reopening of Vietnam (Ba3 negative)'s economy due to the successful control of the outbreak; (2) stabilizing financing conditions supported by ample liquidity following supportive domestic and global measures; and (3) the companies' ability to manage credit and liquidity risks amid disruptions from the coronavirus outbreak.

The companies' funding and liquidity positions were stable during the review period supported by ample international and domestic liquidity, which helped the companies to roll over their existing funding and access new funding. The companies have diversified their funding sources and reduced their funding costs during the same period. However, the companies' reliance on wholesale funding and limited balance sheet liquidity remain a weakness for their credit profiles.



The short duration of the economic disruptions in Vietnam has helped the companies to manage delinquencies and collections within the historical range. While Moody's has observed early signs of stress in delinquencies and collections, especially in April due to social distancing measures, collections recovered and delinquencies dropped in the rest of the second quarter of 2020. The companies have also shown prudent risk management, such as tightening underwriting criteria against the backdrop of slowing economic growth.

CONFIRMATION OF RATINGS OF VP BANK AND SHB

In confirming VP Bank's b1 Baseline Credit Assessment (BCA), Moody's acknowledges the bank's above-industry average profitability and strong capitalization, offset by the heightened credit risk from its consumer finance subsidiary that targets the low-income population in Vietnam, as well as its rapid loan growth in previous years. VP Bank has higher reliance on market funds than other rated Vietnamese banks because of the non-deposit taking nature of its consumer finance subsidiary. But Moody's views the associated risks to be offset by the bank's comfortable stock of liquid assets.

In the case of SHB, the confirmation of its b3 BCA takes into consideration the steady improvements made by the bank in resolving its legacy problem assets, albeit offset by downside risks posed by the ongoing coronavirus outbreak on the debt repayment capacity of the bank's borrowers and the thin loss absorbing buffers SHB has against rising risks. The BCA also takes into account SHB's modest capitalization and profitability compared to other rated banks in Vietnam.

STABLE OUTLOOKS ON THE RATINGS

In the wake of coronavirus-related shocks, Moody's expects slower economic growth for Vietnam in the next 12-18 months, which will result in negative pressure on asset quality and profitability of banks and finance companies. Deteriorating external demand is weighing on exports and tourism, while global containment measures disrupt supply chains, curb consumption and weaken investment activity. That said, the stable outlooks reflect an abatement in the degree of downside risks than initially expected when Moody's took the rating action on the five financial institutions in April 2020, and Moody's views that the downside risks have already been adequately factored into their standalone credit profiles.

The negative outlook on VP Bank's long-term foreign currency deposit rating mirrors the negative outlook on Vietnam's sovereign rating, because a downgrade of the sovereign rating would likely lead to a corresponding lowering in the country's foreign-currency bank deposit ceiling, which is currently at B1.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS

FE Credit, HCV, SHB Finance, VP Bank, SHB

A rating upgrade is unlikely given the ongoing coronavirus pandemic.

FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS

FE Credit

** A downgrade in FE Credit's Standalone Assessment could result in a downgrade of its ratings.

** Moody's could downgrade the company's Standalone Assessment if (i) there is a material deterioration in its asset quality and profitability, as a result of a more challenging operating environment following a resurgence in coronavirus infections and the revival of social distancing measures in Vietnam; and (ii) the company faces liquidity shortfalls due to an unfavorable financing conditions or deterioration in loan collection.

** A downgrade of VP Bank's BCA or any indication of a change in the company's importance to its parent, which would alter Moody's assessment of the probability of parental support, could lead to a downgrade of FE Credit's rating.

HCV

** A downgrade in HCV's Standalone Assessment could result in a downgrade of its ratings.

** Moody's could downgrade the company's Standalone Assessment if (i) there is a material deterioration in its asset quality and profitability, as a result of a more challenging operating environment following a resurgence in coronavirus infections and the revival of social distancing measures in Vietnam; and (ii) the company faces liquidity shortfalls due to an unfavorable financing condition.

SHB Finance

** A downgrade in SHB Finance's Standalone Assessment could result in a downgrade of its ratings.

** Moody's could downgrade the company's Standalone Assessment if (i) there is a material deterioration in its asset quality and profitability, as a result of a more challenging operating environment following a resurgence in coronavirus infections and the revival of social distancing measures in Vietnam; and (ii) the company faces liquidity shortfalls due to unfavorable financing conditions.

** A downgrade of SHB's BCA or any indication of a change in the company's importance to its parent, which would alter Moody's assessment of the probability of support in times of stress, could also lead to a downgrade of SHB Finance's ratings.

VP Bank

** A resurgence in coronavirus infection rates both globally as well as in Vietnam would depress economic activities and weaken borrowers' debt repayment capacity.

** Moody's could downgrade VP Bank's ratings and assessments if the bank's BCA is downgraded. VP Bank's BCA could be downgraded if its solvency weakens as a result of a prolonged outbreak of the coronavirus. Material deterioration in the credit strength of its consumer finance subsidiary, FE Credit, will also be credit negative for VP Bank.

** While Moody's expects VP Bank's funding and liquidity to remain stable over the next 12 -- 18 months, any indication of a bank run will be negative for the bank's BCA.

SHB

** A resurgence in coronavirus infection rates both globally as well as in Vietnam would depress economic activities and weaken borrowers' debt repayment capacity.

** Moody's could downgrade SHB's ratings and assessments if the bank's BCA is downgraded. SHB's BCA could be downgraded if its solvency weakens as a result of a prolonged outbreak of the coronavirus. While Moody's expect SHB's funding and liquidity to remain stable over the next 12 -- 18 months, any indication of a bank run or limited access to market funds will also be negative for the bank's BCA.

RATING METHODOLOGY

The principal methodology used in rating Home Credit Vietnam Finance Company Limited, SHBANK Finance Company Limited and VPBank Finance Company Limited was Finance Companies Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1187099. The principal methodology used in rating Saigon - Hanoi Commercial Joint Stock Bank and Vietnam Prosperity Joint Stock Commercial Bank was Banks Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1147865. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

VPBank Finance Company Limited (FE Credit), headquartered in Ho Chi Minh City, reported total assets of VND69 trillion as of 31 December 2019.

Home Credit Vietnam Finance Company Limited (HCV), headquartered in Ho Chi Minh City, reported total assets of VND24 trillion as of 31 December 2019.

SHBANK Finance Company Limited (SHB Finance), headquartered in Hanoi, reported total assets of VND3 trillion as of 31 December 2019.

Vietnam Prosperity Joint Stock Commercial Bank (VP Bank), headquartered in Hanoi, reported total assets of VND399 trillion as of 30 June 2020.

Saigon - Hanoi Commercial Joint Stock Bank (SHB), headquartered in Hanoi, reported total assets of VND369 trillion as of 31 March 2020.

LIST OF AFFECTED RATINGS

..Issuer: VPBank Finance Company Limited (Lead Analyst: Jeffrey Lee)

.... Corporate Family Rating, Confirmed at B1

.... Outlook, Changed to Stable from Ratings Under Review

..Issuer: Home Credit Vietnam Finance Company Limited (Lead Analyst: Jeffrey Lee)

.... Long-term Issuer Ratings (Foreign and Local Currency), Confirmed at B3

.... Corporate Family Rating, Confirmed at B3

.... Outlook, Changed to Stable from Ratings Under Review

..Issuer: SHBANK Finance Company Limited (Lead Analyst: Jeffrey Lee)

.... Long-term Issuer Ratings (Foreign and Local Currency), Confirmed at B3

.... Corporate Family Rating, Confirmed at B3

.... Outlook, Changed to Stable from Ratings Under Review

..Issuer: Vietnam Prosperity Joint Stock Commercial Bank (Lead Analyst: Rebaca Tan)

.... Adjusted Baseline Credit Assessment, Confirmed at b1

.... Baseline Credit Assessment, Confirmed at b1

.... Long-term Counterparty Risk Assessment, Confirmed at Ba3(cr)

.... Long-term Counterparty Risk Ratings (Foreign and Local Currency), Confirmed at Ba3

.... Long-term Issuer Ratings (Foreign and Local Currency), Confirmed at B1, Outlook changed to Stable from Review for Downgrade

.... Long-term Senior Unsecured Medium-Term Note Program (Foreign Currency), Confirmed at (P)B1

.... Long-term Senior Unsecured Bond (Foreign Currency), Confirmed at B1, Outlook changed to Stable from Review for Downgrade

.... Long-term Deposit Ratings (Foreign Currency), Confirmed at B1, Outlook changed to Negative from Review for Downgrade

.... Long-term Deposit Ratings (Local Currency), Confirmed at B1, Outlook changed to Stable from Review for Downgrade

.... Short-term Issuer Ratings (Foreign and Local Currency), Affirmed at NP

.... Short-term Deposit Ratings (Foreign and Local Currency), Affirmed at NP

.... Short-term Counterparty Risk Ratings (Foreign and Local Currency), Affirmed at NP

.... Short-term Counterparty Risk Assessment, Affirmed at NP(cr)

.... Outlook, Changed to Stable(m) from Ratings Under Review

..Issuer: Saigon - Hanoi Commercial Joint Stock Bank (Lead Analyst: Rebaca Tan)

.... Adjusted Baseline Credit Assessment, Confirmed at b3

.... Baseline Credit Assessment, Confirmed at b3

.... Long-term Counterparty Risk Assessment, Confirmed at B1(cr)

.... Long-term Counterparty Risk Ratings (Foreign and Local Currency), Confirmed at B1

.... Long-term Issuer Ratings (Foreign and Local Currency), Confirmed at B2, Outlook changed to Stable from Review for Downgrade

.... Long-term Senior Unsecured Medium-Term Note Program (Foreign Currency), Confirmed at (P)B2

.... Long-term Deposit Ratings (Foreign and Local Currency), Confirmed at B2, Outlook changed to Stable from Review for Downgrade

.... Short-term Issuer Ratings (Foreign and Local Currency), Affirmed at NP

.... Short-term Deposit Ratings (Foreign and Local Currency), Affirmed at NP

.... Short-term Counterparty Risk Ratings (Foreign and Local Currency), Affirmed at NP

.... Short-term Counterparty Risk Assessment, Affirmed at NP(cr)

.... Outlook, Changed to Stable from Ratings Under Review

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

The below contact information is provided for information purposes only. Please see the ratings tab of the issuer page at www.moodys.com, for each of the ratings covered, Moody's disclosures on the lead rating analyst and the Moody's legal entity that has issued the ratings.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Jeffrey Lee Asst Vice President - Analyst Financial Institutions Group Moody's Investors Service Singapore Pte. Ltd. 50 Raffles Place #23-06 Singapore Land Tower Singapore 48623 Singapore JOURNALISTS: 852 3758 1350 Client Service: 852 3551 3077 Graeme Knowd MD - Banking Financial Institutions Group JOURNALISTS: 852 3758 1350 Client Service: 852 3551 3077 Releasing Office: Moody's Investors Service Singapore Pte. Ltd. 50 Raffles Place #23-06 Singapore Land Tower Singapore 48623 Singapore JOURNALISTS: 852 3758 1350 Client Service: 852 3551 3077

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