Fitch revises Vietnam’s outlook from stable to positive

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Fitch has revised Vietnam’s long-term foreign and local currency issuer default ratings outlook to positive from stable.

The rating agency said in a statement January 23 that it affirms Vietnam’s long-term foreign and local currency IDR at 'B+'. The ratings for the country's senior unsecured foreign- and local-currency bonds are also 'B+'.

The country ceiling was affirmed at ‘B+’ and the short-term foreign currency IDR at 'B'.

According to Fitch, the revision of the outlook to positive from stable was driven by an improvement in macroeconomic stability.

It said Vietnam’s 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 percent in 2013 (5.2 percent in 2012) as both domestic and external demand picked up.

Fitch forecast real GDP to grow at 5.7 percent and 5.9 percent in 2014 and 2015 respectively.

Meanwhile, inflation moderated to 6.6 percent in 2013 compared with 9.1 percent in 2012 and 18.7 percent in 2011.

Another reason for the revision was that the country’s external finances have strengthened. Fitch estimated that Vietnam recorded another large current account surplus of 5 percent of GDP in 2013 (5.8 percent in 2012).

Strong foreign direct investment inflows, at 6.8 percent of GDP in 2013, continued to underpin the expansion in the manufacturing/export sector.

But foreign-exchange reserves stood at US$28.6 billion at end-December (US$26.1 billion at end-2012), or equivalent to 2.4 months of current external payments, 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 Vietnam’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 has been delayed until June 2014.

But the authorities have begun to address the issue by creating a national asset management company to help resolve NPLs.

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