Moody’s lowers Techcombank ratings
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Ratings agency Moody’s Investors Service has downgraded the long-term deposit and issuer ratings of private lender Techcombank because of its high exposure to the struggling property sector.
Its currency deposit and issuer ratings were lowered from Ba2 to Ba3, the same level as several other banks in Vietnam.
Its outlook is down from stable to negative.
“The downgrade of Techcombank’s ratings and assessments reflects Moody’s expectations that the stress faced by Vietnam’s real estate sector will negatively impact the bank’s standalone credit strength, given its high exposure to the sector,” the ratings agency said in a release.
It claimed that the downgrade is unrelated to recent U.S. bank failures and events at Credit Suisse Group AG.
As of the end of December loans to the property and construction sectors represented 29% of Techcombank’s gross loans.
The bank also had exposure to the sectors in the form of corporate bonds, which made up 6% of its total assets.
Some of its exposure to the property sector were of significant size relative to its tangible common equity and could bring volatility to its profitability and capital should they become problem assets.
Defaults by real estate companies in Vietnam have increased since 2022 because of tighter regulations for bond issuances alongside arrests of high-profile real estate business owners and executives amid the government’s anti-graft crackdown.
Property sales have also weakened because rising interest rates have hit affordability.
“As of the end of December loans to the property and construction sectors represented 29% of Techcombank’s gross loans.”
These factors have weakened the debt repayment capacity of property developers, particularly highly leveraged ones with a sizable amount of bonds maturing in 2023 and 2024.
Techcombank’s asset quality could therefore deteriorate given its exposure to the sector.
Its funding and liquidity are adequate given the current environment but are vulnerable to confidence shocks like at other Vietnamese banks.
The negative outlook reflects uncertainties around how the real estate sector in Vietnam will perform and, in turn, the risk of a further strain in the bank’s standalone credit strength if stress in the real estate sector persists.
Moody’s could change the outlook to stable if the stress abates or the bank maintains its problem asset ratio, including its restructured assets, at less than 2% over the next 12–18 months while gradually reducing concentration to the real estate sector.
A bank spokesperson said Moody’s decision reflects the challenges the banking industry faces.
But Techcombank’s core strengths would allow it to remain outstanding, especially in terms of the strength of its capital base, liquidity position and earnings-to-operating income ratio, the spokesperson added.
An earlier Moody’s report said many lenders in Vietnam had high exposure to the property and construction sector as of 2021, the top five being Viet Capital, Nam A Bank, SHB, Techcombank, and BIDV.
Questions & Answers
Q.Why did Moody's downgrade Techcombank's ratings?
Why did Moody's downgrade Techcombank's ratings?
Moody's lowered the ratings due to Techcombank's high exposure to Vietnam's struggling property sector. This exposure is expected to negatively impact the bank's standalone credit strength.
Q.What percentage of Techcombank's loans are to the property and construction sectors?
What percentage of Techcombank's loans are to the property and construction sectors?
As of December, loans to the property and construction sectors accounted for 29% of Techcombank’s gross loans. Also, corporate bonds in these sectors made up 6% of its total assets.
Q.What factors have led to increased defaults by real estate companies in Vietnam?
What factors have led to increased defaults by real estate companies in Vietnam?
Tighter bond regulations, arrests of real estate executives, and weakened property sales due to rising interest rates have increased defaults. These factors have reduced developers' debt repayment capacity.
Q.What conditions could lead Moody's to change Techcombank's outlook back to stable?
What conditions could lead Moody's to change Techcombank's outlook back to stable?
Moody's could change the outlook if stress in the real estate sector abates or if the bank maintains its problem asset ratio below 2% for 12-18 months. The bank would also need to gradually reduce its real estate concentration.
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