Vietnam outlook revised to stable from negative; 'BB-/B' sovereign ratings affirmed

Jun 6th at 18:38

06-06-2012 18:38:16+07:00

Standard & Poor's Ratings Services today revised the outlook on the Socialist Republic of Vietnam to stable from negative and affirmed the 'BB-' long-term and 'B' short-term sovereign credit ratings. In line with this, we raised our ASEAN scale long-term rating on Vietnam to 'axBB+' from 'axBB'. The ASEAN scale short-term rating remains unchanged at 'axB'.

* Outlooks on Vietinbank and BIDV revised to stable on sovereign outlook change; ratings affirmed

The outlook revision reflects our assessment of a reduction in the risks to macroeconomic and financial stability in Vietnam. Key indicators such as credit growth, the level of foreign exchange reserves, and domestic currency
interest rates have improved over the past 18 months.

"We expect Vietnam to maintain these improvements as the government has
expressed its intention to keep price stability high on its policy
priorities," said Standard & Poor's credit analyst Kim Eng Tan.

The ratings on Vietnam reflect the country's low-income economy, its weak
fiscal position, a developing monetary and financial framework, and the
possibility that its evolving policy framework could weaken sovereign risk
indicators. Vietnam's external indicators, reflecting moderate liquidity and a
modest net narrow external debt level, support its sovereign creditworthiness.

The risks of macroeconomic and financial instability in Vietnam have subsided
somewhat since early 2011, in our opinion. The tight credit policy implemented
from that time appears to have improved confidence in the authorities'
determination to restore price stability.

"Outflow of resident capital to foreign assets has slowed as a result,
allowing the exchange rate to stabilize and easing the liquidity squeeze that
Vietnamese banks face," Mr. Tan said.

Despite these improvements, risks of heightened macroeconomic instability in
Vietnam remain. As the government eases its policy stance, it risks renewing
concerns about its commitment to price stability. This could reverse the
recent improvements. A sharper-than-expected slowdown in external demand is
another risk that could trigger a renewed deterioration of credit indicators.

The stable outlook on the ratings reflects our view that Vietnam will maintain
an appropriately tight economic policy stance until there are clear signs of
macroeconomic instability receding, including sustained single-digit rates of
inflation. This would allow fiscal, external, and economic indicators to
remain close to current levels or improve over the next two to three years.

We could lower the sovereign credit ratings if an early easing of the policy
stance causes a marked deterioration in one or more key indicators in the
above areas. We could raise the ratings if the economy resumes strong and
sustained growth as macroeconomic stability returns. Indications that Vietnam
could sustain per capita real GDP growth of more than 6% in the next five to
10 years could lead to a rating upgrade.