Singapore, September 28, 2012 -- Moody's Investors Service has today downgraded Vietnam's foreign-
and local-currency government bond ratings to B2 from B1.
The ratings outlook is stable.
The key drivers for today's ratings action are:
1. A higher likelihood that contingent risks to the government's
balance sheet will be realized due to more pronounced weaknesses in the
banking system; and
2. An expectation of lower medium-term growth prospects
for the country's economy, stemming from the banking system's
encumbered capability to intermediate credit.
Vietnam's long-term foreign currency (FC) bond ceiling remains
at B1, while its long-term FC deposit ceiling was downgraded
to B3 from B2. Its local currency bond and deposit ceilings were
also unchanged at Ba2.
RATIONALE FOR THE DOWNGRADE
The ratings downgrade was driven by the intensification of banking system
vulnerabilities because of the overhang from a prolonged credit boom and
the subsequent tightening in policy.
Over the 5-year period between 2007 and 2011, average domestic
credit growth of 33.7% far exceeded average annual nominal
GDP growth of 21.3% and average annual real GDP growth of
6.6%.
Quantitative and qualitative restrictions on loan growth since early last
year, while helping to alleviate overheating pressures, have
contributed to a deterioration in asset quality in a system already characterized
by relatively low levels of capital adequacy and poor transparency.
Given the apparent lack of private sector solutions, Moody's
believes that there is an elevated risk that the costs of recapitalizing
the banking system will have to be borne, at least in part,
by the government. This is expected to have a material impact on
Vietnam's financial metrics.
Due to the degree of interconnectedness between banks within the system
and the need to preserve depositor confidence, the government is
likely to provide extraordinary support, although political considerations
will affect the size and timeliness of such assistance.
The Vietnamese banks' impaired balance sheets have encumbered their
ability to provide credit in support of economic growth, which has
already been affected by slowing external demand: loan growth has
been virtually flat year-to-date through end-August
despite aggressive monetary easing by the central bank since March 2012.
Given the looming costs related to recapitalization of the banking system,
the government may also be constrained in its ability to formulate an
effective fiscal policy response to a more severe slowdown in global growth.
Moody's considers that the restoration of macroeconomic stability,
as represented by a fall in inflation, the relative health of the
balance of payments, and the accumulation of foreign exchange reserves,
has not adequately offset the vulnerabilities posed by weaknesses in the
banking system.
However, our recognition of the gradual pace of privatization and
the increased dependence of the economy on foreign trade and investment
has led to a lower assessment of moratorium risks and the maintenance
of the FC bond ceiling at B1.
CREDIT TRIGGERS FOR A FUTURE RATING ACTION
The stable outlook means that upside and downside risks are balanced.
Factors that could lead to a positive rating action include:
1. An effective implementation of a bank restructuring plan that
improves the banking system's credit profile and decreases contingent
risks to the government;
2. An improvement in transparency or governance that gives greater
confidence in fiscal and macroeconomic management; and
3. A longer track record of macroeconomic stability, which
preserves competitiveness and growth prospects.
The B2 rating captures a wide range of downside risks stemming from a
further deterioration in the financial system, and the larger fiscal
impact associated with such scenarios. Should a materialization
of risks prove greater than those in the scenarios we currently envisage,
then factors that could lead to a negative rating action include:
1. The realization of contingent risks stemming from the banking
system and/or state-owned enterprise sector that sharply increases
the government's financing requirements and debt burden;
2. A reemergence of a high degree of macroeconomic instability
that leads in turn to a marked deterioration in Vietnam's external
payments position.
In addition, Moody's has corrected the rating for the local currency
government bond due June 30, 2015 (ISIN: VNTD12150353) originally
assigned on September 11, 2012 to B1 from Ba1. The bond was
initially assigned an incorrect rating due to an internal administrative
error. The rating on this instrument is being downgraded today
to B2.
The principal methodology used in these ratings were Sovereign Bond Ratings
published in September 2008. Please see the Credit Policy page
on www.moodys.com for a copy of this methodology.
REGULATORY DISCLOSURES
The Global Scale Credit Ratings on this press release that are issued
by one of Moody's affiliates outside the EU are endorsed by Moody's
Investors Service Ltd., One Canada Square, Canary Wharf,
London E 14 5FA, UK, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that has issued a particular Credit Rating is available on www.moodys.com.
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides relevant regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides relevant regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
The ratings have been disclosed to the rated entities or their designated
agent(s) and issued with no amendment resulting from that disclosure.
Information sources used to prepare each of the ratings are the following:
parties involved in the ratings, and public information.
Moody's considers the quality of information available on the rated
entities, obligations or credits satisfactory for the purposes of
issuing these ratings.
Moody's adopts all necessary measures so that the information it
uses in assigning the ratings is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see the ratings disclosure page on www.moodys.com
for general disclosure on potential conflicts of interests.
Please see the ratings disclosure page on www.moodys.com
for information on (A) MCO's major shareholders (above 5%) and
for (B) further information regarding certain affiliations that may exist
between directors of MCO and rated entities as well as (C) the names of
entities that hold ratings from MIS that have also publicly reported to
the SEC an ownership interest in MCO of more than 5%. A
member of the board of directors of this rated entity may also be a member
of the board of directors of a shareholder of Moody's Corporation;
however, Moody's has not independently verified this matter.
Please see Moody's Rating Symbols and Definitions on the Rating Process
page on www.moodys.com for further information on the meaning
of each rating category and the definition of default and recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history.
The date on which some ratings were first released goes back to a time
before Moody's ratings were fully digitized and accurate data may not
be available. Consequently, Moody's provides a date that
it believes is the most reliable and accurate based on the information
that is available to it. Please see the ratings disclosure page
on our website www.moodys.com for further information.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Christian de Guzman
Vice President - Senior Analyst
Sovereign Risk Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (65) 6398-8308
Bart Oosterveld
MD - Sovereign Risk
Sovereign Risk Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (65) 6398-8308
Moody's downgrades Vietnam's govt bond rating to B2, outlook stable
