Banking woes are burdening Vietnam

Down three places in ECR’s global rankings since January, to 86, Vietnam continues to decouple itself from its Asean partners. And with a 2.2 point decline in its score, to 40.5, the point differential between Vietnam and the rest of the Asean-5 (Indonesia, Malaysia, the Philippines and Thailand) has widened to 12 from 10.4 in January and 7 back in September 2010. Vietnam’s score of 52 in September 2010 was above the southeast Asia average, but it has since fallen 4.7 points below it. Confidence in Vietnam has been rocked in part by weak growth, dampened by declining construction. Real GDP increased by 4.4% year on year during the first six months of this year, according to the General Statistics Office, suggesting that the Asian Development Bank’s forecast of 5.7% for 2012 as a whole is now looking optimistic, even though economic activity did pick up a little between Q1 and Q2. And there is concern about the impact of state-owned enterprise debt for the Vietnamese economy and banking system (Vietnam must tackle SOE debt mountain - opinion). Vietnam’s bank stability risk is now the highest among east and southeast Asia’s emerging markets, as confidence in Cambodia’s banking stability (previously the lowest-ranking) has improved. 

Source: Euromoney Country Risk

According to Christian de Guzman, an analyst at Moody’s Investor Services, and one of ECR’s contributors: “Although macroeconomic instability has passed, bank stability remains a key problem. Tighter monetary policy introduced to deal with high inflation and balance of payments pressures may have caused inflation and FX reserves to stabilize, but have also led to asset quality deterioration. “Plus there are transparency issues – the banks do not report according to international accounting standards, creating uncertainty over how bad things have become within the banking sector.” Information access/transparency is one of nine risk assessment factors (out of 15 in total) that have been downgraded for Vietnam since January.

This article was originally published by Euromoney Country Risk.