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Moody’s downgrade imprecise, but helpful, economist say

In Uncategorized on December 21, 2010 at 9:30 am

Moody’s cutting the foreign currency deposit ratings of six Vietnamese banks to B2 from B1 is not precise, but it is a helpful warning, said Dr. Le Xuan Nghia of National Financial Supervisory Commission (NFSC).

(Photo:Minh Tri)

Nghia said Moody’s rating is based on four factors, including the heightened risk of a balance of payments crisis, accelerating inflation, a falling currency and debt distress from the state-run shipbuilder Vinashin.

“The rating is imprecise as the country’s trade deficit this year will likely to reach US$10-11 billion, much lower than last year’s $13.5-14 billion,” the NFSC’s vice chairman told Dau Tu Tai Chinh newspaper.

“Export turnover grew around 25 percent, already higher than this year’s target of 12 percent. The balance of payments deficit was reduced sharply to $2.3-2.5 billion so far this year, compared with last year’s $8.8 billion,” he said.

Moody’s expected Vietnam’s inflation would likely to climb to 10-11 percent, but the figure actually was around 8.6 percent this year, Nghia noticed.

“The debt from the state-run shipbuilder Vinashin was reportedly up to $4.4 billion, but the amount was actually much lower, equal to one fourth of the reported figure or less in accordance with Vietnam’s debt measuring method,” the vice chairman said.

NFSC’s Nghia also added that Vinashin didn’t go bankrupt and the debt would be paid in mid-term.

“Moody’s downgrade will surely make bad impacts to Vietnam’s bond market. Enterprises will have to be cautious on their plans to issue bonds at foreign markets in early next year. Both foreign direct and indirect investments into Vietnam will be also hit,” Nghia noticed.

He said three out of six lenders mentioned by the US-based credit rating agency are in Vietnam’s ten best banks, so their risks of foreign currency deposits remain at low levels. They include Bank for Investments and Developments of Vietnam, Asia Commercial Bank and Techcombank.

“There are shortcomings in the agency’s rating in term of Vietnam’s actual situation. However, it is a warning that policy makers should take into consideration”

Moody’s Investors Service last week cut the foreign currency deposit ratings of six Vietnamese banks to B2 from B1 with a negative outlook, after cutting the country’s sovereign rating, according to Reuters.

Moody’s also lowered by one to two notches the Baseline Credit Assessments and the associated Bank Financial Strength Ratings of all six banks, Reuters quoted the rating agency as saying.

All the banks are based in Hanoi, except for the Asia Commercial Bank, which has its headquarters in Ho Chi Minh City, Vietnam’s commercial centre.

The move came after Moody’s lowered Vietnam’s sovereign bond rating to ‘B1’ from ‘Ba3’ and the foreign currency bank deposit ceiling to ‘B2’ from ‘B1’ last week.

Source: SGGP

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