By WSJ Staff 

Moody's Investors Service upgraded the ratings of Vietnam on Tuesday, citing the country's emerging track record of macroeconomic stability.

The rating firm said it raised the senior unsecured and issuer bond ratings of Vietnam by one notch, to B1 from B2, with a stable outlook. The new rating is four notches below investment-grade territory.

Moody's also raised the Southeast Asian nation's long-term foreign currency bond ceiling to Ba2 from B1, and its long-term foreign currency deposit ceiling to B2 from B3.

The firm also raised Vietnam's local currency country risk ceiling to Ba1 from Ba2.

Vietnam's balance of payments and external payments position have strengthened, and contingent risks from the banking sector have eased, Moody's said.

Moody's said it might further upgrade Vietnam if there is additional strengthening in the banking system and the state-owned enterprise sector "significantly diminishes contingent risks" to the government.

Earlier this month, Standard & Poor's Ratings Services said, however, that increasing bad debts could significantly undermine the resilience of Vietnam's banking sector.

In early July, the State Bank of Vietnam said it would stick to its loan growth target of 12%-14% for this year to ensure "appropriate" economic growth, despite sluggish loan growth in the first half of 2014.

Vietnam's economic growth relies heavily on loans. The country is aiming for gross domestic product growth of 5.8% this year compared with last year's growth of 5.42%.

Vu Trong Khanh contributed to this article.