VN’s credit conditions in 2025 expected to be stable

Export is one of keys to maintaining Việt Nam’s robust economic outlook and momentum in order to hit its 2025 GDP growth target. Photo moit.gov.vn

The credit conditions for Việt Nam will probably stabilise in 2025, after improving substantially over the past year, the rating agency VIS Rating forecasts.

Under a report released recently, VIS Rating said supportive policies aimed to achieve Việt Nam’s 2021-25 socio-economic development plan's objectives and targets will drive the improvement of domestic business conditions.

The rating agency predicts that corporate bond default rates will continue to decline, as corporate cash flows improve to support debt servicing, and stronger market confidence provides issuers with greater ease to refinance. Nonetheless, corporate leverage remains high and it would require a long period of cash flow recovery to strengthen corporate balance sheets meaningfully.

“Policy focus and measures to support economic activity will drive domestic business activity and consumption. Public spending, FDI and exports are key to maintaining Việt Nam’s robust economic outlook and momentum to achieve its 2025 GDP growth target,” VIS Rating states in the report.

However, it goes on to warn: “With foreign reserves at a five-year low in 2024, the State Bank of Vietnam has limited room to manage currency volatility. If foreign currency outflows increase and trigger further devaluation in the Vietnamese đồng, we expect to see higher interest rates, which will, in turn, dampen growth for domestic businesses.”

VIS Rating believes business conditions will improve gradually in 2025, supported by improvements in public spending and real estate market sentiment. More investments in public infrastructure will boost activities for businesses in the construction, materials, and transportation sectors. New policies resolving legal roadblocks and improving land-use plans will spur new real estate developments and boost homebuyer sentiment.

“We expect retail sales to improve 10-12 per cent year-on-year in 2025 as public wages increase and business and employment incomes stabilise. Improving business and consumer confidence will drive robust credit demand.”

However, the report said: “A key uncertainty to our baseline expectation is the direction of US policies under the new Trump administration, which may hurt exporting nations, including Việt Nam.”

VIS Rating also expects financing conditions will remain stable in 2025. The banking sector has stable funding and liquidity to support new lending to domestic businesses and inpiduals. Following a series of regulatory reforms and the roll-out of the new securities law, the corporate bond market is getting back on track, marked by steadily increasing new issuances in the public and private placement bond markets.

“We expect investor confidence to continue improving from more stringent issuance requirements and greater information disclosures. Bond issuers seeking refinancing will likely face fewer difficulties than in previous years, even as market interest rates adjust upwards due to increased competition for bank deposits.”

VIS Rating forecast corporate cash flows will continue to recover, but high leverage and weak liquidity remain key obstacles to strengthening debt repayment capabilities.

Default rates will also stabilise at a new normal level in 2025, reflecting robust macro-economic and business conditions and new developments in the legal and market infrastructure to manage default risks.