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Fitch Ratings on Thursday downgraded Vietnam's sovereign credit ratings, citing weaker external finances. The rating agency removed them from rating watch negative.
The long-term foreign and local currency Issuer Default Ratings or IDRs were lowered to 'B+' from 'BB-' respectively. The outlooks on the ratings remained stable. Fitch also downgraded the Country Ceiling to 'B+' from 'BB-' and affirmed the short-term foreign currency IDR at 'B'.
"Vietnam's sovereign creditworthiness has deteriorated on the back of weaker external finances and rising external financing requirements amid an inconsistent macroeconomic policy framework, a highly dollarized economy and a weak banking system," said Ai Ling Ngiam, Director in Fitch's Asia Sovereign team.
Fitch estimates Vietnam's gross external financing requirements to rise to 79% of foreign exchange reserves in 2010 from 37% in 2009, higher than the 'B' median of 55%. This would increase vulnerability of Vietnam to changing external financing conditions.
Further, the rating agency forecasts the stock of private credit to reach 116% of GDP in 2010, the highest stock of private credit relative to output in the 'B' rated category. According to Fitch's Macro Prudential Risk Monitor, Vietnam's banking system's vulnerability to potential systemic stress has increased to "high" from "moderate" and now ranks E3, the lowest point on the matrix.
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