VietNamNet Bridge – Moody’s Investors Service has raised its outlook on Vietnam’s banking system to stable from a negative assessment, noting improvements in economic stability and operating environment for lenders.

The revision comes after the agency raised Vietnam’s credit rating in July. Moody’s report on Vietnam’s banking system is based on a comprehensive analysis and data on the current and expected economic conditions and ratings drivers for the banking system in the coming 12 to 18 months.

According to Moody’s, the operating environment for lenders began to stabilise after beginning a long slide in 2012 as a consequence of rapid credit growth in previous years. Vietnam’s efforts to improve its financial system and emphasise economic stability over growth has resulted in credit ratings upgrades.

However, Moody’s noted that Vietnam’s significant bad debt ratio remains an issue and will make bank liquidity slow to recover. As such, profitability across the banking sector will continue to be under pressure.

Vietnam’s economy grew 5.62 per cent in the first nine months through September compared to the same period last year. The government has cut policy interest rates twice this year, aiming to boost whole year growth to 5.9 per cent for 2014, above a World Bank estimate of 5.6 per cent, and 6.2 per cent for 2015.

“Improvements in macroeconomic stability have led to strengthened systematic liquidity,” said Gene Fang, a Singapore-based Moody’s vice president in a company statement.

In early November, Fitch Ratings raised Vietnam’s credit rating by one level to BB-, three levels below investment grade and said government policies have put the country’s economy on more stable ground. Standard & Poor’s also rated Vietnam at BB-, while Moody raised its assessment in July to B1, four steps below investment grade.

VIR/VNN