By contrast, capitalization deteriorated because of rapid asset growth and cash dividends, stated Moody's report "Banks-Vietnam: 2017 results show widening divergence in asset quality and profitability performance."
There's widening divergence in asset quality and profitability performance among banks in Vietnam.
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"For 2018, we expect that the banks will continue to improve their asset quality and profitability, while capitalization will weaken," said Eugene Tarzimanov, Moody's Vice President and Senior Credit Officer and author of the report.
"But the credit profiles of banks with stronger capital buffers and lower asset risks will be further distanced from the other banks," assessed Rebaca Tan, analyst at Moody's and co-author.
Regarding asset quality in particular, Moody's said that the improvement against 2016 was helped by problem asset recoveries and write-offs, as well as credit growth. The asset weighted-average problem loans ratio at the 14 rated banks fell to 5.7% at the end of 2017 from 6.7% the year before.
Notably, four banks fully wrote off the Vietnam Asset Management Company bonds that they had received in exchange for problem assets, and Moody's expects more such write-offs in 2018.
Problem loan coverage ratios also improved, although they are still at levels which are weak by international standards.
Moody's said that the banks' asset quality will improve further in 2018 due to recoveries, but rapid credit growth could mask asset risks.
Regarding profitability, Moody's pointed out that the banks' asset weighted-average return on assets rose to 0.9% in 2017 from 0.7% in 2016. Profitability will continue to improve in 2018 on the back of the same factors that drove up profitability in the prior year, particularly robust macroeconomic conditions and growth in core income.
As for capitalization, the asset weighted-average ratio of tangible common equity to total assets for the banks slipped to 5.5% in 2017 from 5.7% in 2016, pressured by declines at government-owned banks, in particular.
Nevertheless, some banks, such as VPBank (B2 stable, b3), Techcombank (B2 stable, b2), and HDBank (B2 stable, b3), strengthened their capital bases through the sale of new shares.
Moody's expected that more Vietnamese banks will increase capital by issuing new shares in 2018. However, overall capitalization levels will remain under pressure over the next 12 months from credit growth and dividend payments.
Moody's explained that in terms of funding, the banks' funding profiles weakened moderately, as seen by the system-wide asset weighted-average loans-to-deposits climbing to 86% in 2017 from 85% in 2016. This trend could continue in 2018, because loan growth remains rapid.
The 14 Moody's rated banks in Vietnam are Sacombank, VPBank, ABBank, BIDV, SHBank, HDBank, VIB, Lien Viet, TPBank, Techcombank, MB, Vietinbank, Vietcombank, and ACB.
As at October 31, 2017, the total assets of the banking sector reached an all-time high of VND9,400 trillion (US$412 billion), up 10.87% compared to the beginning of the year, according to the State Bank of Vietnam.
In 2017, the after-tax profit of the banking sector increased by 44.5% over 2016, stated the 2017 financial report of the National Financial Supervisory Commission. The return on assets (ROA) and return on equity (ROE) ratios are higher than in the previous year, reaching 0.69 and 10.2%, respectively (against 0.56 and 8.05% in 2016).
