Fitch affirms ratings of Sacombank

Fitch Ratings has affirmed Vietnam-based Saigon Thuong Tin Commercial Joint Stock Bank (Sacombank)’s Individual and Support ratings of 'D' and '5', respectively.
The ratings reflect Sacombank's adequate balance sheet strength and good profitability.

The bank has grown rapidly over recent years, registering a 237% growth in its balance sheet over the three years to end-2005.

Its loan book is split 40:60 between consumers and private businesses, reflecting its niche focus in the retail business segments which has been considerably neglected by Vietnam's larger state-owned banks.

Despite its rapid growth, Sacombank has maintained good asset quality, with a very low reported NPL ratio of 0.6%, down from 0.9% a year prior thanks to loans growth and very few new NPLs.

Additionally, almost all loans are tangibly secured on a low/conservative loan-to-value basis, although this provides only limited comfort in a country where foreclosure is a time-consuming and uncertain process due to a relatively inefficient legal system.

Meanwhile, profitability has been good with the bank achieving a RoAA of 1.8%, thanks to strong margins from its retail deposit-taking/lending focus, good fee income and limited credit costs.

Sacombank's capital strength is also sufficiently adequate, with an end-2005 equity/asset ratio of 13.0%, up from 9.3% at end-2004 due to capital injections and to a lesser extent retained earnings.

Such substantial capitalization, however, is unlikely to remain over the longer term if the bank continues to grow so fast. In this regard, the bank advises that it plans to retain all of 2006's earnings and further boost its equity base by 5% to 10% through a public share issuance over 2007.

Sacombank was formed in 1991 through the consolidation of four credit institutions in Ho Chi Minh City.

The bank has three foreign strategic shareholders, ANZ, the IFC and Dragon Financial Holdings (a Vietnam-based, UK-owned asset management company). It was listed mid-2006 with management holding a 34% share and the public 29%.

Source: The Asian Banker