A local bank employee counts money. The US$/VND exchange rate remains stable, trading near the midpoint of the trading band. — Photo laisuat.vn

HA NOI (Biz Hub) ― Viet Nam's currency has evolved into the unexpected bastion of stability in the region, despite challenges that persist in the economy, ANZ Bank states in a report dated February 7.

The US$/VND exchange rate remains stable, trading near the midpoint of the trading band.

ANZ foreign exchange strategists have forecast a gradual depreciation to VND21,900/US$ by the end of 2015, with the expectation that the US dollar will further strengthen against regional currencies.

Authorities have affirmed the nation's policy of managed depreciation, allowing for a weakness of a maximum of 2 per cent this year.

"Due to the continued flow of foreign direct investment, rise in overseas remittances, and improved trade balance, we see support for the local currency. This has allowed the central bank to shore up its forex reserves over the past year," the report says.

"Various interviews with central bank officials have revealed that forex reserves are around US$21 billion, a vast improvement from the levels in 2010," it says.

Due to the stable currency and improved current account surplus of around 5.6 per cent of the gross domestic product (GDP), foreign equity continues to pour in. About $70 million in foreign funds have flowed into local stocks since the beginning of the year.

Credit expanded by 1 per cent year-on-year in January to nearly VND953 trillion ($45.38 billion), with multilateral organisations pouring funds into the economy through imports and export funding programmes.

However, access to credit is still under pressure from the structural challenges posed by the high nonperforming loans (NPLs) seen on banks' balance sheets, the report says.

Official sources say the bad debt ratio has declined to 3.79 per cent by the end of last year, but international agencies estimate that NPLs are more than double the official levels.

The State Bank of Viet Nam maintains that it does not expect a significant increase in official NPLs estimates when Circular No 2, a regulation stipulating stricter rules for bad debts, is enforced on June 1.

"We reiterate our view that a significant improvement in the banking sector will greatly depend on the political will of the authorities in settling bad debts," the report says.

According to ANZ, other economic indicators that maintained a steady improvement in January included a rally in the stock market, a narrow trade balance, a continued moderation in inflation and a steady growth in retail sales. These support an ANZ forecast of a GDP growth of 5.6 per cent this year. ― VNS