VIETNAM VN's foreign, local currency issuer gets stable rating

VN's foreign, local currency issuer gets stable rating

VietFinanceNews.com - Fitch Ratings affirmed late last week Viet Nam's foreign and local currency issuer default ratings at ‘B+', adding that the outlook for both ratings was stable.

The country ceiling is also affirmed at ‘B+', and the short-term foreign currency issuer default ratings at ‘B'.

"The ratings and stable outlook reflect the success so far of efforts by Viet Nam's authorities to tackle the macro-financial imbalances that arose in 2010 and 2011," said Art Woo, director of Fitch's Asia-Pacific Sovereign Ratings group.

Fitch said in the report that since implementing fiscal and monetary tightening measures to restore macroeconomic stability under Resolution 11 issued in February 2011, Viet Nam has made vital progress in taming inflation.

"Headline CPI inflation grew by 10.5 per cent year-on-year in April, down from a recent peak of 23 per cent year-on-year in August 2011," it said, forecasting CPI inflation to average 10 per cent in 2012, compared with 18.7 per cent in 2011.

It said that Resolution 11 also lent support to the current account position, which recorded a surplus of 0.2 per cent of GDP in 2011 versus a deficit of 4 per cent in 2010.

Besides the improvement of the current account position, a robust attraction of US$7.4 billion, or 6 per cent of GDP, of foreign direct investment (FDI) last year also supported improvement in the balance of payments and in turn the foreign exchange reserves position, which has recently proven vulnerable to capital flight, particularly when economic stability has been under strain.

"The success Viet Nam has enjoyed in attracting FDI and the dynamism of its economy are significant sovereign rating strengths," Fitch noted.

As Viet Nam's last reported official reserves, excluding gold, increased to $14.1 billion at end-November 2011, from $12 billion at end-2010, and is estimated to reach $16-17 billion at end-March 2012 or roughly 1.8 months of current external payments receipts, Fitch said the country's macro economy and balance of payments are stable, though import coverage of less than two months is low relative to rated peers.

Despite recent signs of greater macroeconomic stability including lower inflation, a stronger current account position and a more stable dong exchange rate, Woo said that further evidence that these improvements have become entrenched and reform of the banking and State-owned enterprise sector is needed to put upward pressure on Viet Nam's sovereign ratings.

According to Fitch, though the country has recently stepped up efforts to pressure weaker banks to clear up bad debt and encourage consolidation, its banking sector remains a source of weakness and a constraint on the sovereign rating.

"The system is thinly-capitalised and asset quality is deteriorating. Moreover, some smaller banks are still facing liquidity pressures as they expand credit more rapidly than their deposit base," it explained.

Meanwhile, though the broader economic reform process is also taking shape as the new 2011-15 socio-economic development plan highlighted the need to transform public investment and SOEs, no concrete action plan has been formulated and reform of SOEs and public investment is likely to be a gradual process. As a consequence, given the uncertain health of the SOE sector and low transparency, SOEs remain a large contingent liability for the sovereign.

Fitch concluded that the ability to persist with Resolution 11 measures and in turn create a more balanced macroeconomic environment of lower inflation, stable GDP growth and a more stable balance of payments would be a positive development for Viet Nam's sovereign ratings.

http://www.vietfinancenews.com/2012/05/vns-foreign-local-currency-issuer-gets.html