Fitch Ratings has revised the Outlook on
The Outlook revision reflects the improving Standalone Credit Profile of Mcredit's dominant shareholder,
Our view is reflected in the positive outlook on
Key Rating Drivers
Ratings Underpinned by Shareholder Support: Mcredit's IDR and Shareholder Support Rating (SSR) are one notch below MB's Viability Rating, reflecting our expectation of extraordinary support in times of need from MB. We regard Mcredit as a strategically important subsidiary, given its complementary role in MB's retail banking strategy and the parent's record of equity and funding support to Mcredit. The ratings also consider the reputational risk to MB if Mcredit were to default, and MB's adequate capacity to support.
Parent's Strengthened Ability to Support: Our view on MB's improving standalone creditworthiness takes into consideration our belief that capitalisation is likely to improve, and that economic conditions should remain favourable for asset quality and earnings prospects over the next 12-18 months. This is notwithstanding downside risks from external uncertainties and tighter funding conditions.
We believe this will benefit MB's ability to support its financing subsidiary. Mcredit's assets and equity account for a modest 3%-4% of MB's assets and equity, and we do not expect this proportion to rise beyond 10% in the next few years. Our stress test indicates that MB would be able to recapitalise Mcredit in a stress scenario without falling below its minimum regulatory capital requirements, albeit with a narrower buffer.
Strong Synergies, Support Record: We see Mcredit as an important part of MB, as the subsidiary complements MB's overall retail franchise in
High Reputational Risk: Mcredit's management and operations are closely integrated with MB through representation in top management, including the CEO and several deputy CEOs, and the sharing of MB's infrastructure, technology and customer base. We believe MB has significant influence over Mcredit's governance and operations, and a default by Mcredit would entail high reputational costs for MB.
Further Resources from Shinsei: Mcredit also benefits from the technical expertise and financial resources of
Modest Standalone Profile: Mcredit's Standalone Credit Profile does not drive its ratings, but reflects our assessment of its niche business model, higher-risk loan portfolio and growth appetite, narrower funding base and high leverage relative to its risk profile. Mitigating factors are Mcredit's franchise as the third-largest consumer financier by assets and its access to low-cost and stable shareholder funds.
Rating Sensitivities
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Mcredit's Long-Term IDR is sensitive to any deterioration in MB's ability to provide extraordinary support, if needed. Negative action on MB's Viability Rating will translate into negative rating pressure.
A decline in MB's propensity to support Mcredit could also lead to negative rating action. This could arise from reduced management and operational integration, most likely in combination with weaker non-equity funding support to Mcredit, or a reduction in Mcredit's strategic value to MB. Any ownership dilution to below 50% would also lead to negative rating action, and may result in Mcredit's rating being based solely on its standalone strength rather than our expectation of shareholder support.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Mcredit's Long-Term IDR may be upgraded if there is an upgrade of MB's Viability Rating or if the company becomes a more meaningful contributor to MB's operations and strategy. This may be evident through increased referrals between the entities or a greater profit contribution by Mcredit. A longer record of sustainable operations by Mcredit, combined with an increase in MB's influence and control relative to Shinsei, could also lead to positive rating action. This is assuming other factors underpinning shareholder support remain intact.
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
Public Ratings with Credit Linkage to other ratings
Mcredit's Long-Term IDR is linked to MB's Viability Rating.
ESG Considerations
Mcredit's ESG Relevance Scores for Governance Structure and Financial Transparency have been revised to '3', from '4', in line with Fitch's revision on MB's ESG Relevance Scores.
We have revised Mcredit's ESG Relevance Score for Governance Structure to the sector default of '3', from '4', as we believe some of the corporate governance weaknesses at MB group, such as low independent director representation at the bank level, have not materially impacted business performance and have only a minimal effect on the rating.
We have revised Mcredit's ESG Relevance Score for Financial Transparency to the sector default score of '3', from '4'. Mcredit's financial statements under Vietnamese Accounting Standards may continue to differ from International Financial Reporting Standards, but we do not believe this weighs materially on the company's credit rating, even after factoring these differences into our rating assessment.
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only minimal credit impact on the entities, either due to their nature or to the way in which they are being managed by the entities. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
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