S&P lowers credit rating for Viet Nam
(06-05-2008)
HA NOI — Standard & Poor’s has lowered Viet Nam’s credit rating from stable to negative, reflecting doubts in the global community about the country’s capacity to cool down its overheated economy.
However, other ratings’ agencies have not changed their positions on Viet Nam. Moody’s maintains a positive outlook, placing a Ba3 rating on the country’s long-term debt in both foreign and local currencies. And Fitch rates Viet Nam’s outlook as stable.
S&P affirmed Viet Nam’s credit rating at BB/B for foreign currency and BB+/B for local currency, noting "good prospects for sustained economic growth" driven in part by a wave of foreign investment.
The credit rating agency cautioned, however, that Viet Nam’s ratings could be lowered if a banking system crisis arose.
It said excessive credit growth had resulted from a loosely regulated banking system, especially smaller commercial banks that had lent aggressively to build market share while ignoring the risks, and lending for stock investments, real-estate developments and projects of State-owned enterprises with little prospects for profit.
Viet Nam, one of Asia’s fastest-growing economies, has been struggling with skyrocketing inflation, which hit a 17-year high of 21 per cent year-on-year in April, and a mounting trade deficit of US$7.4 billion brought on by booming fuel, steel and capital equipment imports.
Tackling the dual problems of high inflation and a huge trade deficit has left the nation’s top regulators scratching their heads and have forced the Government to cut the growth target this year from 8.5 per cent to 7.5 per cent.
To battle inflation, the State Bank of Viet Nam has tightened monetary policy, imposing higher compulsory reserve ratios on banks, raising interest rates, and limiting loans on securities and real-estate investment.
S&P also said the ratings outlook could improve "on indications that the economy was rising to a sustainable growth path".
Analysts are worried that any further downgrading of Viet Nam’s credit rating could have a negative impact on foreign capital inflows. — VNS
