2014.07.2908:25:00UTC+00Moody's Raises Vietnam Credit Rating To B1

Moody's Investor Service on Tuesday upgraded Vietnam's credit rating, citing the country's macroeconomic stability, strengthening balance of payments and external payments position as well as an easing in the contingents risks from the banking sector.

The rating agency upgraded Vietnam's issuer and senior unsecured bond ratings by one notch to B1 from B2 with a stable outlook. The latest upgrade was the first since July 2005. The country's rating is four notches away from investment grade.

Standard & Poor's has a 'BB-' rating on Vietnam.

The stable outlook for the B1 rating reflects the expectation of continued macroeconomic stability, Moody's said. This would further underpin the restructuring of the banking system and augment the country's external payments position, it added.

The firm also raised Vietnam's long-term foreign currency bond ceiling to Ba2 from B1, as well as its long-term foreign currency deposit ceiling to B2 from B3. The local currency country risk ceiling was lifted to Ba1 from Ba2.

Moody's noted that Vietnam is experiencing its third consecutive year of broad macroeconomic stability. "Although economic growth has fallen since 2012, as compared to the preceding decade, the economy has been characterized by price stability," the firm added.

Further, the firm said the strengthening of Vietnam's balance of payments and external payments position has been underpinned by a diversification in the structure of the country's exports towards more capital-intensive manufactured goods.

"Nevertheless, Vietnam's balance of payments remains susceptible to capital flows and leakages, as represented by relatively large errors and omissions in its balance of payments," Moody's said.

In June, Vietnam's central bank devalued its currency for the first time this year to support exports.

Vietnam's banking system operating environment has stabilized and risks to the government's balance sheet are likely to remain limited, Moody's said. However, the agency pointed out that the overhang from a decade-long credit boom, reflected by the huge stock of non-performing loans, continues to constrain the banking sector.

"Liquidity conditions have improved, reducing the scale of inter-bank lending and the degree of interconnectedness in the system," Moody's said. "Consequently, contingent risks to the government have eased, but have not been entirely eliminated."