HANOI (Bloomberg): Vietnam’s strong push for rapid economic growth could lead to policy decisions that worsen already high debt levels, increasing risks to the country’s credit rating and the health of domestic banks, according to Fitch Ratings.
"We believe there is a risk that the authorities could loosen monetary and credit policy significantly as they seek to achieve the government’s ambitious target,” Fitch Ratings said in a statement Friday.
Vietnam’s Prime Minister Pham Minh Chinh is aiming for economic growth of 8.3%-8.5% this year, even as the government continues to work out the details of a US trade deal that will see a 20% tariff imposed on Vietnamese goods, which could potentially derail that drive.
The level of debt in the economy is high, estimated at about 135% of gross domestic product by the end of 2024, and well above the 53% median for countries with a ‘BB’ rating from Fitch, according to the statement.
Fitch expects this rate to rise further as the government counters the impact of higher US tariffs. Planned reforms, such as ending credit growth quotas for banks from 2026, may add to this trend, it said.
"Vietnam’s high and rising leverage in the economy and relatively underdeveloped policy framework, which has delivered strong growth but lacks full transparency in terms of decision-making and data, constrain the sovereign rating,” the statement said.
However, this is partly balanced by strong growth prospects, low government debt, and a favorable external debt profile.
Prime Minister Chinh last week ordered the central bank to develop a plan to remove credit growth targets starting next year, as part of efforts to boost the economy, the government said.
Easing bank lending controls will likely lift credit growth above the expected 16% in 2025-2026, and help boost bank profits; however, faster lending growth could worsen already high debt levels and lead to more bad loans over time, Fitch Ratings said in the statement.
Bank lending rose 9.64% as of July 28 from the end of last year, according to the State Bank of Vietnam.
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