The arrest of banking mogul Nguyen Duc Kien early last week, though having highlighted some existing risks of Vietnam’s banking system, will improbably lead to any systemic contagion, said a member of the world’ Big Three credit rating agencies.
“A recent arrest of one of the founders of Asia Commercial Joint Stock Bank (ACB), one of Vietnam’s largest privately owned banks, highlights the risks in the country’s banking industry,” said Standard & Poor’s Ratings Services (S&P).
However, “S&P understands that the resultant liquidity pressure was limited to ACB, and believes that it is unlikely that other Vietnamese bank will face a similar situation.”
“We believe that assurances by State Bank of Vietnam (SBV) of liquidity assistance to ACB could mitigate the risk of contagion.”
“Nevertheless, if other banks in Vietnam face liquidity pressure that leads to a systemic or a confidence crisis, our ratings on these banks may come under downward pressure,” it added.
S&P said it has always perceived inadequate governance and transparency as key risks for Vietnam’s banking industry.
“In our view, timely reforms of the country’s state-owned enterprises and its banking sector are essential to build depositor and investor confidence in the system, especially when nonperforming loans are rising.”
After several years of high credit growth, economic imbalances have reduced somewhat following the government’s stabilisation policies in 2011, it said.
“A much-needed moderation in loan growth, a restoration of asset price stability, and a reduction in inflation have taken place as a result of these policies. Policymakers have recently started showing intent to tackle long-standing problems in the banking sector.”
“The process of restoring confidence in the banking system and monetary policy is in an early phase and calls for careful management,” it said.
Late last week, other credit rating agency, Moody’s, downgraded the rating of ACB for the “debt issuer” and “local currency deposit” categories from B1 to B2 and it may be from b1 to b2 in the long run.
However, Moody’s kept ACB’s standalone financial capacity rating intact at E+. The agency also placed ACB’s foreign currency deposit rating in the downgrade risk.
According to Moody’s, the arrest of the co-founder of ACB, Nguyen Duc Kien, and the former general director of ACB, Ly Xuan Hai, will put pressure on the bank’s liquidity and have negative effects to ACB in the long term.
Moody’s said that the situation of ACB takes place in the context of the good liquidity but asset quality tends to decrease.
Meanwhile, Fitch gave a rating of B for ACB’s short-term and long-term debt issuance and warned to review ACB’s standalone powerful rating.
Fitch has been closely monitoring the potential impacts on the rating of the local bank after Kien was arrested. The agency will retain the rating for ACB if the arrest of Kien for investigation does not cause large financial losses for the local bank.