Fitch Ratings: Risks in Vietnam's Property Sector Easing
According to Fitch Ratings, the risks stemming from Vietnam’s struggling property sector have diminished. However, the country’s declining foreign exchange reserves could expose it to external shocks, warns the ratings agency. In a note released on Tuesday, Fitch Ratings stated, “With the decline in interest rates, the associated stress has peaked, and the likelihood of worst-case scenarios, such as contingent liabilities migrating to the sovereign balance sheet, has significantly reduced.”
Last year, the Vietnamese government initiated a crackdown on the property sector, focusing on financing practices among developers and implementing stricter regulations for bond issuance. This crackdown, along with the arrest of some prominent developers, resulted in challenges for the bond market, which had long been utilized by developers to raise capital. Consequently, development activities experienced a slowdown.
While Fitch Ratings acknowledges the improvement in the property sector, it expresses concern about Vietnam’s foreign exchange reserves. These reserves decreased from a peak of US$112 billion in January 2022 to $88.9 million in March of this year. The report emphasizes the importance of reserves as a safeguard against risks posed by external shocks in rapidly growing export-oriented economies like Vietnam. Fitch Ratings notes that Vietnam’s reserve buffer remains relatively small, averaging 3.2 months of current account outgoings in the period of 2018-2022, compared to the ‘BB’ rating median of 5.2 months.