A local bank employee counts money. Viet Nam's improved external position is keeping the national currency stable. -- Photo vietstock.vn

HA NOI (Biz Hub) ― Viet Nam's sustained improvement in the external position is keeping the Vietnamese dong stable, according to an ANZ economic update released on March 6.

In the first two months, realised foreign direct investment (FDI) capital rose 6.67 per cent year-on-year to about US$1.12 billion, international trade posted a surplus of $244 million, and industrial production increased by an average of 7.9 per cent year-on-year.

In February, the US$/VND continued to trade within a thin range of 21,070-21,110, hovering close to the State Bank of Viet Nam (SBV)'s official rate of 21,036.

With the continuous flow of external funding, mostly from FDI and external trade, the central bank continues to shore up its stock of foreign exchange reserves.

On February 18, Prime Minister Nguyen Tan Dung noted that foreign exchange reserves have risen to an all-time high of US$40 billion, while SBV Governor Nguyen Van Binh reported that the central bank added $2 billion to its reserves, thereby taking the total to $30 billion.

"We maintain our view that Viet Nam's stable external position has enabled the central bank to bolster its external buffers," the report claimed.

In February, Moody's maintained its negative outlook on the banking sector, despite stabilisation in the macro fundamentals, as the ratings agency estimated non-performing loans (NPLs) to be at 15 per cent of the total assets, which approximately quadruples the official estimate.

The central bank has revised Circular No. 2 on debt classification and provisioning against risks, which will become effective on June 1. The amendment will allow banks to consider the loans of "bad counterparties" as "good debt" till the time the counterparty continues to repay that debt with that particular bank.

"In our view, the amendment will likely mask the real risk of NPLs in the banking sector, given that the banking system is highly interconnected," the report stated.

The report also noted that lower interest rates, a result of the banks' ample liquidity, are encouraging domestic investors to shift to the local stock exchange. Foreign funds also continue to flow into local stocks, attracting more than $100 million since the beginning of this year. ― VNS