Standard & Poor’s rates Vietnam below ‘investment’ grade

S&P maintained on Thursday its “BB” foreign-currency rating, or two notches below investment grade. The country’s local currency rating remains one rung above that at “BB-plus.”

“The credit ratings reflect the country’s low-income economy, developing financial system, and evolving policy framework,” Standard & Poor’s credit analyst Kim Eng Tan was quoted as saying in a statement released from Singapore.

“These weaknesses increase the vulnerability of the economy to severe shocks that could significantly increase the public financial burden,” he added.

The world’s foremost provider of independent credit ratings, indices and risk said that healthy economic growth prospects, reinforced by the government’s persistent efforts in economic restructuring, partly offset these weaknesses. A modest level of external indebtedness also supports the government’s credit quality.

By April 2009 consumer price inflation had receded to below 10 percent and the trade account was in surplus for the first four months of this year.

Steps taken to achieve this, as well as the continuing economic reforms implemented over this period, likely reassured investors, Tan said.

“Foreign direct investment remained very strong in 2008 and we expect it to contribute to maintaining Vietnam’s trend annual economic growth at about 7 percent. We forecast this year’s growth to be lower at 4 percent because of the global slowdown,” he said.

Standard & Poor’s said nonperforming loans are expected to rise over the next one to two years, particularly at the newer and smaller banks that had seen the fastest lending growth. If the economic downturn is prolonged, financial pressure will mount to exacerbate asset quality deterioration.

The government may have to support the banks to preserve financial stability, according to Tan.