Fitch reaffirms nation's B+ rating, stable outlook

Fitch Ratings has affirmed Vietnam's long-term foreign and local currency-issuer default ratings (IDRs) at ‘B+', with a stable outlook.
Fitch Ratings has affirmed Vietnam's long-term foreign and local currency-issuer default ratings (IDRs) at ‘B+', with a stable outlook.

The ratings agency also affirmed the country ceiling at ‘B+' and the short-term foreign-currency IDR at ‘B'.

"Vietnam's ratings are underpinned by its track record of strong economic growth and a favourable environment for foreign direct investment that has rendered the economy less vulnerable to external shocks and raised its potential growth rate," Fitch said in a statement.

"The ratings are also supported by favourable overall levels of external debt and debt service relative to rated peers as well as by high levels of domestic savings and investment."

The agency estimated that Vietnam's domestic savings rates have averaged 28 percent over the past five years, while its investment rates have averaged 36 percent.

Fitch lauded the State Bank of Vietnam for publicly admitting that non-performing loans (NPLs) accounted for 8.8 percent of total outstanding loans as of September last year – considerably higher than had been previously reported by banks. The agency called this official transparency a positive step toward addressing structural weaknesses in the financial sector.

"The State Bank is also reportedly considering the establishment of a State asset management company to help restructure banks," Fitch said.

"Improvements in the quality of financial reporting and governance as well as greater confidence in the size of the fiscal risk posed by the banking sector would lift a key constraint on Vietnam's ratings."

The stable outlook reflected Fitch's expectations that policymakers would remain committed to economic stability, including lower inflation, a stable currency, and avoiding an excessive current account deficit.

Vietnam has managed to increase its current account balance while avoiding recession, in contrast to some other emerging and advanced economies.

Fitch estimated the current account surplus rose to 7.2 percent of GDP in 2012, compared to just 0.2 percent in 2011. Foreign reserves, as a result, reached an estimated 24 billion USD as of the end of 2012, providing Vietnam with a larger buffer against any further capital flight.

Vietnam's economy has survived the worst of the downturn, with growth slowing considerably in response to austerity measures implemented under Resolution No 11 in February 2011.

Real GDP grew 5.5 percent year-on-year in the second half of last year, up from a 4.4 percent increase in the first half.

Fitch therefore forecast real GDP growth of 5.5 percent in 2013, up from 5 percent in 2012.-VNA

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