HA NOI (VNS)— Fitch Ratings on Thursday revised Viet Nam's sovereign outlook to ‘positive' from ‘stable' due to an improvement in the country's macroeconomic stability and strengthening external finances.
|A staff checks money at the Ha Noi Commercial Bank for House Development. Fitch Ratings revised Viet Nam's sovereign outlook to ‘positive' from ‘stable' due to an improvement in the country's macroeconomic stability and strengthening external finances. — VNA/VNS Photo Tran Viet|
Under the revision, the rating agency has also affirmed Viet Nam's long-term Foreign – and Local-Currency Issuer Default Rating (IDRs), and senior unsecured foreign – and local-currency bonds at "B+."
The country's Short-Term Foreign Currency IDR is also affirmed at "B".
The rating agency said that Viet Nam's economy has begun to recover following a difficult period after austerity measures were implemented in early 2011 to cool an overheating economy.
"Real GDP grew 5.4 per cent in 2013 (5.2 per cent in 2012) as both domestic and external demand picked up. Meanwhile, consumer price inflation has moderated, coming in at 6.6 per cent in 2013, compared with 9.1 per cent in 2012 and 18.7 per cent in 2011," Fitch said.
Fitch also forecast Viet Nam's real GDP to grow 5.7 per cent and 5.9 per cent in 2014 and 2015, respectively.
In addition, Fitch said the strengthening of the country's external finances had led the agency to revise the country's outlook.
Fitch estimated that Viet Nam recorded a large current account surplus of 5 per cent of GDP in 2013 (5.8 per cent in 2012). Strong foreign direct investment (FDI) inflows, at 6.8 per cent of GDP in 2013, continued to underpin the expansion in the manufacturing/export sector.
The agency estimated that foreign-exchange reserves stood at US$28.6 billion at the end of 2013 ($26.1 billion at the end of 2012), equivalent to 2.4 months of current external payments, which is not a large buffer given Viet Nam has experienced episodes of significant capital flight in recent years.
In the revision, Fitch noted that the country's banking sector remains a source of weakness for Viet Nam's credit profile due largely to non-performing loans (NPLs). The implementation of Circular 2, which will apply stricter rules on the classifying and provisioning of NPLs, has been delayed until June 2014.
"However, the authorities have begun to address the issue by creating a national asset management company to help resolve NPLs. Meanwhile, funding pressures in the banking sector have eased due to divergent trends in loans and deposits, which resulted in the system-wide loan-to-deposit ratio falling to 91.6 per cent at end-Q2 2013, down from 94.8 per cent at end-2012," Fitch said.
As fiscal policy has turned more expansionary over the past year, Fitch estimates that Viet Nam's budget (including off-budget spending) posted a deficit of 5.8 per cent of GDP in 2013 (4.8 per cent in 2012).
Fitch noted that the current positive outlook could be upgraded if there is meaningful progress in reforming the banking sector, including the successful implementation of Circular 2 and the transfer of NPLs to the Viet Nam Asset Management Company, which will contribute to greater clarity on the potential cost of resolving NPLs.
Continuing macroeconomic stability and an acceleration in structural reforms, particularly at state-owned enterprises, which would not only help improve the economy's competitiveness but also banks' asset quality, will be also considered factors for an upgrade in the country's outlook, Fitch said.
The rating agency yesterday also revised the outlooks of two Vietnamese state-owned banks – the Viet Nam Bank for Agriculture and Rural Development (Agribank) and the Viet Nam Joint Stock Commercial Bank for Industry and Trade (Vietinbank) – to positive from stable.
The agency also affirmed the Long-Term IDRs on the banks at ‘B'.
"The outlook revision on both banks' IDRs reflects Fitch's view that the sovereign's ability to provide extraordinary support, if needed, is improving," Fitch noted.