Moody’s Investor Service has assigned a stable outlook to the Vietnamese banking system, backed by more positive indicators this year.
In the report titled “Banking System Outlook – Vietnam: Benign Macro Conditions Support Stable Outlook,” Moody’s said its stable outlook for the Vietnamese banking system, which has been in place since November 2014, is driven by the country’s robust economic growth as well as the rated banks’ stabilizing asset quality and good liquidity.
The outlook is in the context of relatively low ratings on the banks, reflecting their weak capital levels and insufficient provisioning for legacy asset-quality assets. It expresses the rating agency’s expectations of how banks’ creditworthiness will evolve in this system over the next 12-18 months.
The operating environment for Vietnamese banks has been benign in the past two years, after a sharp deterioration in 2012 that followed several years of very rapid credit growth. Rapid economic growth improves the recovery prospects for legacy problem assets and supports Vietnamese banking new business expansion.
Increasing foreign direct investments, a large current account surplus, and a policy preference for stability over growth have all contributed to improved conditions for the banks.
“We expect asset quality to be stable over our outlook horizon, and also note the improved transparency around problem assets, due to more stringent regulations,” said Eugene Tarzimanov, Moody’s Vice President and Senior Credit Officer.