Moody’s Investors Service upgraded Vietnam’s credit rating on July 29, reflecting its continued macro-economic stability.

The rating firm said it raised the Government bond ratings by one notch, from B2 to B1 with a stable outlook. It also raised the long-term foreign currency bond ceiling from B1 to Ba2 and its long-term foreign currency deposit ceiling from B3 to B2.

Moody’s also upped the country’s local currency country risk ceiling to Ba1 from Ba2.

The firm noted that Vietnam was in the midst of its third consecutive year of broad macro-economic stability. Although economic growth had fallen since 2012 compared to the preceding decade, the economy was characterised by price stability.

Further, it said strengthening of the balance of payments and external payments position had been underpinned by a diversification in the structure of Vietnam’s exports towards more capital-intensive manufactured goods, such as mobile phones and electronics, and away from commodities and traditional labour-intensive products, such as textiles and shoes.

Vietnam is becoming a more important location in regional cross-border production networks for electronic goods.

“Nevertheless, its 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.

Combined with relatively weak imports, this had resulted in the current account shifting from a deficit to a healthy surplus. In turn, the development had contributed to the accumulation of foreign exchange reserves to an all-time high of US$35.9 billion, as of April 2014, as well as the stability of the exchange rate.

Moody’s said Vietnam’s banking system had stabilised and risks to the Government’s balance sheet were likely to remain limited.

However, the firm noted that the overhang from a decade-long credit boom-as manifested in the still large stock of non-performing loans (NPLs) – continued to constrain the banking sector.

VNS/VNN