Global ratings agency Standard & Poor’s (S&P) yesterday lowered Vietnam’s sovereign credit rating, the second downgrade of the country by an international agency in recent days.
S&P raised concerns about the country’s banks as it lowered the long-term foreign currency sovereign credit rating to BB- from BB, while the local currency rating dropped to BB from BB+, with a negative outlook.
Bonds in all of these categories are considered speculative, or junk bonds.
“The ratings downgrade reflects Standard & Poor’s assessment of a greater susceptibility of Vietnam’s banking system to a financial or economic shock,” the firm’s credit analyst Kim Eng Tan said in a statement.
“If such shocks materialize, we expect that the banking system would require direct government support and the associated contingent liabilities to the government could amount to as much as 60 percent of GDP.”
On Dec. 15, Moody’s Investors Service, downgraded Vietnam’s government bond rating to B1 from Ba3, maintaining a negative outlook.
S&P said macroeconomic volatility in recent years, amid strong lending growth, has weakened the banking sector’s balance sheet.
“Pressures on the sector have been exacerbated by persistent resident capital outflows that have negatively affected domestic liquidity conditions,” Tan said. “The government’s response has been limited by its still-evolving policy framework and the lack of transparency in the country.”
In separate comments to Agence France-Presse, Tan said troubles at state-owned shipbuilder Vinashin (Vietnam Shipbuilding Industry Group) “contribute to the uncertainties affecting the banking sector” but were not by themselves a key factor in the downgrade.
Nearly bankrupt Vinashin was due to pay on Monday the initial US$60 million installment on a US$600 million loan arranged by Credit Suisse in 2007.
Company chairman Nguyen Ngoc Su was quoted in official media on Monday as saying the firm had no way to immediately make the payment and was “still waiting for the final answer” from creditors on its request for a 12-month deferral.
A World Bank report this month said bad loans are expected to increase for banks with significant exposure to Vinashin.
S&P had also warned that Vinashin’s debt problems were likely to undermine the credit quality and profitability of domestic banks.
Moody’s, in its downgrade, cited the risk of a balance of payments crisis, rising inflation and the debts of shipbuilder Vinashin.