S&P highlights Vietnam’s economic improvements

S&P believes that it is unlikely that other Vietnamese banks will face a similar situation.

"We believe that assurances by the State Bank of Vietnam of liquidity assistance to ACB could mitigate the risk of contagion. Nevertheless, if other banks inVietnam face liquidity pressure that leads to a systemic or confidence crisis, our ratings on these banks may come under downward pressure,” it said.

S&P spoke highly of Vietnam’s macro-economic improvements, saying that after several years of high credit growth, economic imbalances have reduced somewhat following the government’s stabilisation policies in 2011.

A much-needed moderation in the growth of loans, stabilisation of asset prices and a reduction in inflation have taken place as a result of these policies.

Policymakers have recently started showing intent to tackle long-standing problems in the banking sector. Recent initiatives include moves to consolidate and strengthen the industry, increase recognition of asset quality problems, and enhance regulatory supervision.

The government eased monetary policy earlier this year in response to receding inflation, loan stress faced by borrowers and a slowdown in growth.

However, S&P said, the process of restoring confidence in the banking system and monetary policy is in an early phase and calls for careful management.