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|Military Bank staff help customers. Fitch Ratings has assigned the bank a "B" rating, citing a stable outlook. - VNS Photo Truong Vi|
The ratings reflect the bank's relatively strong financial profile and risk management, compared to its local peers and its strong franchise as one of the largest private commercial banks in Viet Nam.
The ratings also incorporate the bank's above-industry-average loan growth and its high reliance on corporate deposits.
MB Bank's reported asset quality metrics reflect a more conservative loan classification methodology relative to its peers. At the end of June, 2014, the MB Bank reported a non-performing loan ratio of 3.11 per cent. The bank's loan book is also well-diversified across industries and highly collateralised. These credit strengths will help mitigate potential risks emanating from the bank's rapid loan growth.
Fitch expects the MB Bank to maintain its capitalisation at around current levels as its rapid asset growth is likely to be supported by its high internal capital generation ability and the issuance of new capital, if needed.
Funding and liquidity have also generally been well managed with the loan-to-deposit ratio maintained below 70 per cent, supported by strong deposit growth during recent years. In contrast to local peers, the bank relies highly on corporate deposits (63 per cent of total deposits at the end of June, 2014), in part driven by the MB Bank's capabilities in corporate banking services.
The MB Bank's corporate deposits also include a higher share of deposits from state-owned enterprises relative to other private commercial banks. This and the high representation of the military on the bank's board of directors reflect the bank's military background.
The bank also benefits from access to the branch network of the Viet Nam Military Telecommunication Group (Viettel), the bank's largest shareholder. Lower funding costs and less reliance on a retail branch network have helped support the bank's net interest margins and overall profitability, which are higher relative to its local peers.
Also according to Fitch, positive rating actions could arise from an improvement in capitalisation, sustainable loan book growth, and increased retail franchise, while maintaining its financial performance. Upside rating potential may also arise from further improvements in the operating environment for the banking industry and a strengthened regulatory framework in Viet Nam.
The ratings could be pressured if its loan quality deteriorates significantly more than what the current rating level entails, resulting in weakening of capitalisation.
A change in the relationship with Viettel, which would result in a significant increase in funding and operating costs, will also be negative for ratings. Negative rating actions might also result from event risks, such as an aggressive takeover/merger, which might result in a significantly weaker financial profile.