Moody's puts Vietnam under review for downgrade because of delayed payment

The key driver behind its decision is institutional weaknesses, as revealed by delayed payments on an obligation by the government.

Moody's said that these weaknesses seem to reflect deficient coordination and planning among various arms of the government, with a degree of opacity around the decisions and actions needed to meet some of the government's obligations; and complex bureaucratic processes that can obstruct the smooth and timely payment of government obligations.

While the information available so far points to no or minimal losses for creditors, the coordination gaps within the administration that the delayed payments may reflect, point to creditworthiness that may no longer be consistent with a Ba3 rating.

During the review period, Moody's will assess the practices and systems the government has or is instituting, to ensure reliable, timely, and smooth payment of all obligations.

Moody's expects to complete the review within three months.

The Vietnam's Ministry of Finance said Moody’s decision based on a single incident is inappropriate and affirmed that the Government has never been late in fulfilling its debt repayment obligations.

According to the ministry, the delayed payments Moody's mentioned is a government-guaranteed debt which is a part of the government's reserve debt obligations, not its direct one.

The government of Vietnam has fulfilled the guarantor's responsibility for payment even if not receiving a formal request from lender.

It added that Moody's based on a single incident and ignored the efforts that the government of Vietnam has achieved in maintaining macroeconomic stability is not really convinced.

The decision may make investors misunderstand government's ability to pay debts, affecting Vietnam's reputation and national image.

Vietnam's long-term foreign currency (FC) bond ceiling at Ba1, its long-term FC deposit ceiling at B1, and its local currency bond and deposit ceilings at Baa3 are unchanged.

The short-term FC bond and deposit ceilings remain unchanged at Not Prime.

Independent of the outcome of the rating review, Vietnam's credit profile will remain underpinned by strong growth potential. Absent significant economic or contingent liability shocks, Moody's expects the government's debt burden to remain broadly stable, just under 50% of GDP.

Meanwhile, although the financial health of Vietnamese banks has improved over recent years, the banking system remains the chief driver of overall event risks for the country.

Following Moody's placement of Vietnam's Ba3 sovereign rating under review for downgrade, it places 17 Vietnamese banks under review for downgrade. The review of the banks' ratings is driven purely by the sovereign rating action and does not reflect a weakening of the banks' standalone financial profiles, it said.

Of the 17, Moody's has also placed on review for downgrade the Baseline Credit Assessments (BCAs) and Adjusted BCAs of four banks, and the long-term Counterparty Risk Assessments (CR Assessments) of nine.

The affected banks are ABBank, ACB, HDBank, Vietcombank, BIDV, LienVietPostBank, Military Bank, Nam A Bank, OCB, SHB, TPBank, Agribank, VIB, VietinBank and Techcombank.