Fitch upgrades rating for Vietnam citing it as the fastest amongst 'BB' rated peers

By Minh An - May 15, 2018 | 03:36 PM GMT+7

TheLEADERFitch Ratings has upgraded Vietnam’s rating from "BB-" to "BB" proving the nation’s improvement on economic growth, foreign exchange reserves and government debt.

Fitch Ratings is a leading provider of credit ratings, commentary and research, which is dedicated to provide value beyond the rating through independent and prospective credit opinions.

The government of Vietnam has converted the country into one of the fastest developing economies in the world with a GDP growth of 6.8 percent in 2017 and an average growth of 6.2 percent over the last five years, which are well above the “BB” median of 3.4 percent.

According to Fitch Ratings, the export-oriented manufacturing sector and continued development in services are the main explanations for this growth.

Additionally, Fitch Ratings forecasts that Vietnam will be able to achieve GDP growth of 6.7 percent in 2018 thanks to strong FDI inflow and consumption growth. In particular, registered FDI will grow by approximately 40 percent from the previous year up to $21.3 billion.

As a result, it is awaited that Vietnam will remain among the fastest-growing economies in the Asia-Pacific region and fastest among 'BB' rated peers.

Foreign-exchange reserves are also predicted to increase to approximately $66 billion by the end of 2018, an increase from $49 billion since 2017. The growth in foreign-exchange reserves offers a cushion against external shocks.

Meanwhile, Fitch Ratings calculated that the general government debt reduced to 52.4 percent of GDP in 2017 from 53.4 percent in 2016. Moreover, it is expected that the general government debt will decrease even further to below 50 percent of GDP in 2019 thanks to the privatisation programme.

The authorities of Vietnam are committed to containing debt levels and reorganizing state-owned enterprises.

Nevertheless, Fitch Ratings considers the banking sector of Vietnam to be fundamentally fragile with many issues still being existent, especially the problem with bad debt.

“We believe banking system non-performing loans remain under-reported and true asset quality is likely to be weaker than stated,” Fitch Ratings stated.

Additionally, the needs for recapitalisation of the banking sector and the rapid growth of credit are also considered as threats to the sovereign and the financial stability of Vietnam in the medium term.

In general credit growth at the end of 2017 was around 18 percent, in line with authorities' target and by 2018, it is expected that the credit growth will remain at 17 percent.