Moody’s downgrades Techcombank ratings, changes outlook to negative

Credit rating agency Moody’s has downgraded the long-term deposit and issuer ratings of Techcombank and changed the outlook from stable to negative due to the bank’s high exposure to the struggling real estate sector in Vietnam.

Moody’s downgraded Techcombank's long-term foreign and local currency deposit and issuer ratings to Ba3 from Ba2, and adjusted baseline credit assessment (BCA) to ba3 from ba2, the bank's long-term foreign currency and local currency counterparty risk ratings (CRR) to Ba2 from Ba1, and its long-term counterparty risk (CR) assessment to Ba2 from Ba1.

The credit rating agency also affirmed the bank's not-prime short-term foreign currency and local currency deposit ratings, not-prime short-term foreign currency and local currency issuer ratings, not-prime short-term foreign currency and local currency CRR, and not-prime short-term CR assessment.

Moody’s clarified the downgrade reflects its expectations that the stress in Vietnam’s real estate market would negatively impact the lender’s standalone credit strength based on the bank’s high exposure to the sector.

The downgrade is not related to the events of some U.S. banks and Switzerland’s Credit Suisse Group AG, it noted.

As of end-2022, loans to the real estate and construction sectors represented 29% of Techcombank's gross loans. The bank also had exposures to the sectors in the form of corporate bonds as gross corporate bonds were 6% of its total assets.

A few of the bank's large exposures to the real estate 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, according to Moody’s.

Techcombank's funding and liquidity are adequate given the current environment but they are vulnerable to confidence shocks like other Vietnamese banks. Market funds as a percentage of tangible banking assets was 29% as of the end of 2022, up from 26% a year earlier.

While Moody's expects the bank's reliance on market funds to decline over the next 12-18 months as it focuses on attracting sticky customer deposits, deposit competition will however lead to an increase in funding cost.

High quality liquid assets such as cash, balances with the central bank and government securities rose to 8% of Techcombank's tangible banking assets as of end-2022 from 5% a year earlier, but still a modest level.

Defaults among real estate companies in Vietnam have increased since 2022 because of tighter regulations surrounding bond issuances, alongside arrests of high-profile real estate business owners and executives driven by the government's anti-graft crackdown.

Property sales have also weakened because rising interest rates have depressed credit affordability for borrowers. These factors have weakened the debt repayment capacity of real estate developers, particularly the highly leveraged ones with a sizable amount of bonds maturing in 2023 and 2024. Hence, the asset quality of Techcombank could deteriorate given its concentrated exposure to the sector, Moody's added.

"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."

TCB shares closed down 0.57% to VND26,200 ($1.11) each on Wednesday.

Techcombank, one of Vietnam’s leading private lenders, recorded an after-tax profit of VND25.6 trillion ($1.09 billion) in 2022, up 10% year-on-year.

The bank's operating revenue reached VND40.9 trillion ($1.74 billion) during the period, up 10.3%, according to its consolidated financial statement. Operating revenues are those generated from primary business activities.

Its interest income came in at VND30.3 trillion ($1.29 billion), up 13.5% year-on-year, mainly driven by credit portfolio growth with a net profit margin (in 12 months) managed at 5.1%.

As of December 31, 2022, Techcombank's assets reached VND699 trillion ($29.8 billion), up nearly 23% compared to 2021. Total credit balance was 14.5%, in line with the target set by the State Bank of Vietnam, with the credit portfolio continuing to be transformed from large corporate to personal loans.