Published: Wednesday August 29, 2012 MYT 11:46:00 AM
S&P sees timely reforms of Vietnam enterprises, banks essential
KUALA LUMPUR: Standard & Poor's Ratings Services believes Vietnam must undertake timely reforms of the country's state-owned enterprises and its banking sector, especially after the recent arrest of one of the founders of Asia Commercial Bank (ACB).
The ratings agency said on Wednesday the arrest highlighted the risks in the country's banking industry. ACB is one of Vietnam's largest privately owned banks.
"Standard & Poor's understands that the resultant liquidity pressure was limited to ACB, and believes that it is unlikely that other Vietnamese banks will face a similar situation," it said.
S&P said reforms were essential to build depositor and investor confidence in the system, especially when non-performing loans are rising.
It noted that State Bank of Vietnam's assurances of liquidity assistance to ACB could mitigate the risk of contagion.
"Nevertheless, if other banks in Vietnam face liquidity pressure that leads to a systemic or a confidence crisis, our ratings on these banks may come under downward pressure," it said.
S&P had always perceived inadequate governance and transparency as key risks for Vietnam's banking industry.
After several years of high credit growth, economic imbalances have reduced somewhat following the government's stabilisation policies in 2011.
However, a much needed moderation in loan growth, a restoration of asset price stability, and a reduction in inflation have taken place as a result of these policies.
S&P also said Vietnam's policymakers have recently started showing intent to tackle long-standing problems in the banking sector.
The indications include initiatives to consolidate and strengthen the industry, greater recognition of asset quality problems, and enhanced supervision.
The government eased monetary policy earlier this year in response to receding inflation, the stress faced by borrowers due to heightened interest rates, and a slowdown in growth.
"The process of restoring confidence in the banking system and monetary policy is in an early phase and calls for careful management," it said.