HÀ NỘI – Credit conditions in Vietnam are forecast to stabilize in 2025, following substantial improvements over the past year, according to a recent report by VIS Rating.

The agency anticipates that supportive government policies, aimed at achieving the country's 2021-25 socio-economic development plan's objectives, will drive improvements in domestic business conditions. VIS Rating predicts a continued decline in corporate bond default rates as corporate cash flows improve, supporting debt servicing, and stronger market confidence facilitates refinancing. However, they caution that corporate leverage remains high, requiring a prolonged period of cash flow recovery for meaningful balance sheet strengthening.

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

Despite the positive outlook, VIS Rating warns of potential challenges. "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 dong, we expect to see higher interest rates, which will, in turn, dampen growth for domestic businesses."

The agency believes business conditions will gradually improve in 2025, driven by increased public spending and improved sentiment in the real estate market. Higher public infrastructure investment will boost activity in the construction, materials, and transportation sectors. New policies addressing legal hurdles and improving land-use plans are expected to spur real estate development and bolster homebuyer confidence.

"We expect retail sales to improve 10-12 percent year-on-year in 2025 as public wages increase and business and employment incomes stabilize. Improving business and consumer confidence will drive robust credit demand."

However, the report highlights a key uncertainty: "A key uncertainty to our baseline expectation is the direction of US policies under the new Trump administration, which may hurt exporting nations, including Vietnam."

VIS Rating also expects financing conditions to remain stable in 2025. The banking sector possesses stable funding and liquidity to support new lending to domestic businesses and individuals. Following regulatory reforms and the implementation of the new securities law, the corporate bond market is recovering, with steadily increasing new issuances in both public and private placement 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."

The agency forecasts continued recovery in corporate cash flows, but notes that high leverage and weak liquidity remain obstacles to strengthening debt repayment capabilities. Default rates are expected to stabilize at a new normal level in 2025, reflecting robust macroeconomic and business conditions, as well as developments in the legal and market infrastructure for managing default risks.