HDBank’s plan to buy unnamed “weak bank” to weaken loss buffers: Moody’s

Little is known about the target bank and what incentives Vietnamese authorities offer.

HDBank’s plan to acquire and rehabilitate an anonymous “weak bank” is not attracting any confidence from the ratings agency Moody’s.

Moody’s Investors Service said in a report that it expects the acquisition to weaken HDBank’s loss-absorbing buffers, deteriorating its overall credit profile.

Currently, little is known about the bank to be acquired, with HDBank also yet to disclose the target bank’s asset quality, capitalization, accumulated losses if any, and incentives offered by the Vietnamese authorities to mitigate potential negative impact of the deal.

“Although HDBank will not be required to consolidate the bank, Moody's will likely assess the financial position of HDBank on a consolidated basis because the bank could be required to make capital injections and provide liquidity support to the target bank during the rehabilitation process,” the ratings agency said regarding the issue.

There is also a potential negative impact on the acquisition as a governance risk under its environmental, social and governance (ESG) framework because it reflects HDBank's relatively aggressive financial strategy and risk management, which could hurt the bank's credit profile, Moody’s warned.