Friday , June 21 2024

Vietnam property sector-related risks receding: Fitch Ratings

The risks from the struggling property sector have receded, but falling foreign exchange reserves might expose Vietnam to external shocks, Fitch Ratings has said.

“With interest rates having fallen back, the associated stress has peaked and worst-case scenarios that might have seen contingent liabilities migrate to the sovereign balance sheet appear much less likely,” the ratings agency said in a note Tuesday.

The government last year launched a crackdown on the property sector with a focus on financing practices among developers, tightening regulations for bond issuance and arresting some prominent developers.

Challenges in the bond market, which had been utilized by developers for years to mobilize capital, stalled development activities.

Fitch Ratings is however concerned about Vietnam’s foreign exchange reserves, which had dropped from a peak of US$112 billion in January 2022 to $88.9 billion in March this year.

“We view reserves as an important protection against the risks posed by external shocks in fast-growing export-oriented economies like Vietnam,” the report said.

It added that Vietnam’s reserve buffer remained small at an average of 3.2 months of current account outgoings in 2018-2022 against the ‘BB’ rating median of 5.2 months.

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