Moody's Investors Service upgraded Vietnam's credit rating on July 29, reflecting its continued macro-economic stability.

The rating firm said it raised the Government bond ratings by one notch, from B2 to B1 with a stable outlook.

Italso raised the long-term foreign currency bond ceiling from B1 to Ba2and its long-term foreign currency deposit ceiling from B3 to B2.

Moody's also raised the country's local currency country risk ceiling to Ba1 from Ba2.

Thefirm noted that Vietnam was in the midst of its third consecutive yearof broad macro-economic stability. Although economic growth had fallensince 2012 compared to the preceding decade, the economy wascharacterised by price stability.

Further, it said strengtheningof the balance of payments and external payments position had beenunderpinned by a diversification in the structure of Vietnam's exportstowards more capital-intensive manufactured goods, such as mobile phonesand electronics, and away from commodities and traditionallabour-intensive products, such as textiles and shoes.

Vietnam is becoming a more important location in regional cross-border production networks for electronic goods.

"Nevertheless,its balance of payments remains susceptible to capital flows andleakages, as represented by relatively large errors and omissions in itsbalance of payments," Moody's said.

Combined with relativelyweak imports, this had resulted in the current account shifting from adeficit to a healthy surplus. In turn, the development had contributedto the accumulation of foreign exchange reserves to an all-time high of35.9 billion USD, as of April 2014, as well as the stability of theexchange rate.

Moody's said Vietnam banking system had stabilisedand risks to the Government's balance sheet were likely to remainlimited. However, the firm noted that the overhang from a decade-longcredit boom - as manifested in the still large stock of non-performingloans (NPLs) - continued to constrain the banking sector.-VNA