HANOI: Vietnam's fiscal deficit and public debt are expected to increase as the country invests in large infrastructure projects, Moody's Ratings said on Thursday (Feb 26), urging banks to boost capital buffers.
The South-East Asian country has embarked in an ambitious programme to upgrade its infrastructure, with hundreds of new large-scale projects launched just last year for an estimated value of around US$200 billion.
That is part of a wider plan to boost growth and diversify its export-reliant economy. Vietnam is targeting a deficit of 4.2 per cent of its Gross Domestic Product this year, up from 3.8 per cent in 2025.
That will increase the debt burden estimated at around 33 per cent of GDP last year, although Moody's projected it to remain lower than peers at around 40 per cent of GDP by the end of the decade.
A wide-ranging reform agenda launched under top leader To Lam is also expected to benefit banks and reduce their exposure to the real estate sector, Moody's said.
Loan growth to the sector rose to 42 per cent by the end of September compared to a year earlier, above an average of 27 per cent between 2022 and 2024, Moody's said, noting that exposure was expected to stabilise this year.
Moody's said Vietnamese banks had relatively low capital buffers with a Tier 1 ratio of nine per cent, nearly half the average in South-East Asia, but it expected the gap to narrow over the next few years because of higher capital requirements.
It urged some large state-owned banks to "aggressively build their capital buffers", citing BIDV and VietinBank among those with "modest capitalisation compared with most private commercial banks". - Reuters
