(Repeat for additional subscribers)
Jan 23 (The following statement was released by the rating agency)
Fitch Ratings has affirmed Vietnam a€™s Long-Term Foreign- and Local-Currency Issuer Default
Rating at '€˜B+'€™. The issue ratings on Vietnama€™s senior unsecured foreign- and
local-currency bonds are also affirmed at '€˜B+'€™. The Outlooks on the Long-Term IDRs are
revised to Positive from Stable. The Country Ceiling is affirmed at a€˜B+a€™ and the Short-Term
Foreign Currency IDR
KEY RATING DRIVERS
The revision of the Outlook on Vietnama€™s IDRs to Positive from Stable reflects
the following key rating drivers:
- There has been an improvement in macroeconomic stability. The economy has
begun to recover following a difficult period after austerity measures were
implemented in early 2011 under Resolution 11 to cool an overheated economy.
Real GDP grew 5.4% in 2013 (5.2% in 2012) as both domestic and external demand
picked up. Fitch forecasts real GDP to grow 5.7% and 5.9% in 2014 and 2015
respectively. Meanwhile, consumer price inflation has moderated, coming in at
6.6% in 2013 compared with 9.1% in 2012 and 18.7% in 2011.
- The countrya€™s external finances have strengthened. Fitch estimates that
Vietnam recorded another large current account surplus of 5% of GDP in 2013
(5.8% in 2012). Strong foreign direct investment (FDI) inflows, at 6.8% of GDP
in 2013, continue to underpin the expansion in the manufacturing/export sector.
However, Fitch estimates that foreign-exchange reserves stood at USD28.6bn at
end-December 2013 (USD26.1bn at end-2012), equivalent to 2.4 months of current
external payments, which is not a large buffer given Vietnam has experienced
episodes of significant capital flight in recent years.
- The banking sector remains a source of weakness for Vietnama€™s credit profile
due largely to a high but unknown level of non-performing loans (NPLs). The
implementation of Circular 2, which will apply stricter rules in classifying and
provisioning for NPLs was 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% at end-2Q13, down from 94.8% at end-2012.
- Fiscal policy has turned more expansionary over the past year. Fitch estimates
that Vietnama€™s budget (including off-budget spending) posted a deficit of 5.8%
of GDP in 2013 (4.8% in 2012). Fitch in turn estimates that gross government
debt rose to 42.6% of GDP at end-2013 (40.0% at end-2012). In comparison, the
a€˜Ba€™ and a€˜BBa€™ peer rating group medians stood at 42.4% and 35.1% in 2013
The Positive Outlook reflects the following risk factors that may, individually
or collectively, result in an upgrade:
- Meaningful progress in reforming the banking sector, including the successful
implementation of Circular 2 and the transfer of NPLs to the Vietnam Asset
Management Company, contributing to greater clarity on the potential cost of
- Continued macroeconomic stability, characterized by an environment of low and
stable inflation and external equilibrium
- Acceleration in structural reforms, particularly at state-owned enterprises,
which would not only help improve the economya€™s competitiveness but also banksa€™
The Outlook is Positive. Consequently, Fitch's sensitivity analysis does not
currently anticipate developments with a material likelihood, individually or
collectively, of leading to a downgrade. However, future developments that may,
individually or collectively, lead to a revision of the Outlook to Stable
- Higher-than-expected losses in the banking sector, which would require
large-scale sovereign support and potentially threaten macro-financial stability
- Abandoning Resolution 11a€™s macroeconomic stability objectives and/or an
adoption of policies that threaten price and external stability
- A sharp, sustained deterioration in the public finances which leads to a large
increase in Vietnama€™s gross government debt/GDP ratio
- Fitch assumes that Vietnama€™s authorities will continue to adhere to policies
aimed at achieving macroeconomic stability, sustainable GDP growth, low and
stable inflation, and healthier current account balances.
- Fitch assumes that the potential cost of restructuring the banking sector will
be broadly in line with the agencya€™s base of 10% of GDP.
- Fitch assumes that political stability will persist in the medium-term.
- Fitch assumes that the global economy will improve gradually over the forecast
period. The worlda€™s real GDP growth is projected to rise 2.9% and 3.2% in 2014
and 2015, compared with an estimate of 2.3% in 2013.