Moody's upgrades Techcombank's outlook from 'negative' to 'stable'

Techcombank's above-average capital and profitability

Moody’s Ratings has announced the retention of the long-term (LT) deposit ratings for both local currency (LC) and foreign currency (FC) of Vietnam Technological and Commercial Joint Stock Bank (Techcombank) at Ba3, similar to the ratings assigned in March 2023. Additionally, it adjusted the outlook from "negative" to "stable".

Moreover, Moody’s also maintained the basic credit assessment (BCA) and adjusted BCA of Techcombank at ba3; the long-term counterparty risk ratings LT LC and FC (CRR) at Ba2 and the long-term counterparty risk (CR) at Ba2. Furthermore, Moody’s also upheld Techcombank's short-term ratings.

According to Moody’s, the adjustment of the outlook from "negative" to "stable" reflects Techcombank's above-average capital and profitability factors within the industry, supported by stable funding sources.

Moody’s expects credit risks related to Techcombank's real estate sector to stabilize over the next 12 to 18 months. The rating agency noted that real estate transactions in Vietnam are gradually recovering with an increasing market supply and a recent 2 - 3 percentage point reduction in mortgage lending rates, equivalent to 200 - 300 basis points (bps).

The strong economic growth momentum of Vietnam and anticipated policies are also expected to support the real estate sector's recovery. Therefore, Moody's believes Techcombank will benefit from increased real estate transactions, leading to higher mortgage lending and reduced risks with real estate businesses. Techcombank is evaluated as providing better-quality real estate investor loans compared to the industry as a whole.

Techcombank's capital adequacy and profitability ratios are also forecasted to support its ratings. Techcombank's tier 1 capital adequacy ratio was at 14% at the end of December 2023, and its return on average assets (ROAA) reached 2.4% in 2023, while the industry average was only 1.4%.

Moody’s expects Techcombank's loan portfolio to grow by around 20%, and net interest margin (NIM) to improve over the next 12 to 15 months due to lower cost of funds.

However, the bank's credit costs and profitability may be affected by asset quality risks stemming from lending concentration in certain sectors.

The bank's business real estate lending ratio increased to over 34% at the end of 2023, from 26% in the previous year (personal and corporate real estate lending accounted for about 70% of Techcombank's loan portfolio).

According to Moody’s, Techcombank's overall capital and liquidity sources will remain stable. The bank's deposits improved in 2023, with the current account savings account (CASA) ratio at 40%, the highest among Moody’s rated banks, helping to reduce Techcombank's loan-to-deposit ratio to 114% at the end of 2023, compared to 112% in Q2/2023.

Factors for rating upgrade

Moody’s also highlighted several factors that could affect the bank's rating assessment. Specifically, reducing significant lending concentration in the real estate sector while maintaining asset quality, capital, and profitability would be a positive factor.

Techcombank's reduced reliance on market funds and increased proportion of high-quality liquid assets above 15% will also positively influence Moody's ratings upgrade.

However, Moody’s could downgrade Techcombank's ratings if BCA were to decline by more than one notch. A decline in BCA could occur if the bank's repayment capacity weakens due to a sudden deterioration in asset quality or a continued increase in real estate sector concentration.

Any signs of difficulty in accessing funding sources for Techcombank would also negatively impact its credit ratings.

Source: Moody’s

Compiled by VBI