21:34 (GMT +7) - Wednesday 18/07/2018

Banking & Finance

S&P revises rating outlook for Techcombank to stable

Released at: 10:09, 13/09/2017

S&P revises rating outlook for Techcombank to stable

Illustrative image (Source: techcombank.com.vn)

Rating revised from negative as ratings agency believes bank can sustain its above-average profitability over next 12 months.

by Quang Huy

Standard & Poor’s (S&P) has revised its rating outlook for Techcombank to stable from negative while affirming the bank’s “BB-” long-term and “B” short-term issuer credit ratings.

“We revised the rating outlook on Techcombank to stable because we believe the bank can sustain its above-average profitability over the next 12 months despite competition,” S&P said.

Techcombank has adopted a balanced approach toward profit enhancement and risk-taking, it went on. The bank is pursuing a retail-focused strategy, particularly among the mass affluent, while downsizing its chunky corporate exposures to enhance yields. It is also considering downsizing its real estate and construction exposure to de-risk its loan book.

Its asset quality has been improving since 2013, reflecting efforts to clean up its legacy weak loans through increased provisions and rehabilitation and recovery of bad loans. Its 2016, net profit climbed 105.92 per cent year-on-year, supported by loans growth, a higher net interest margin (NIM), and solid non-interest income.

By December 31, non-performing loans (NPLs) fell to 1.58 per cent from a peak of 3.7 per cent in 2013 while its capital adequacy ratio of 13.3 per cent was in the highest quintile among its peers. Its restructured loans also fell to 0.5 per cent from 9.7 per cent over the same period.

The momentum then spilled over into 2017’s first quarter, with the bank recording 127 per cent year-on-year growth in pre-tax profit, to VND1.32 trillion ($58 million), primarily thanks to gains in investment securities and lower provision expenses.

With total non-provisioning bonds at the Vietnam Asset Management Company (VAMC) were cut significantly, to VND406.6 billion ($18 million) from VND1.55 trillion ($68.2 million) during the three-month period, a higher NPL ratio of 1.89 per cent and lower loan loss reserves (LLR) of 60.45 per cent as at March 31 were not much of a concern for Techcombank given its higher quality loan book. 

“We expect Techcombank to maintain its capitalization and liquidity over the next 12 months,” S&P said, adding that the bank has a history of retaining profits with no dividend payout to preserve capital to support growth. Techcombank’s stable deposit base is backed by a sizable contribution from the retail segment, which underpins its funding profile.

The stable outlook on Techcombank reflects S&P’s view that the bank will maintain its status as a leading privately-owned bank in Vietnam over the next 12 months with an entrenched retail franchise and above-average profitability.

However, S&P noted, it may lower the rating if Techcombank’s business position suffers due to strategic missteps or if its pre-diversification risk-adjusted capital ratio falls below 3 per cent.

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