In the first 9 months of 2024, Vietnam's banking industry continued to maintain stability despite pressure from natural disasters and high interbank interest rates. A recent report by Vietnam Investment Credit Rating Joint Stock Company (VIS Rating) showed that large banks have steadfastly overcome difficulties, while small banks face risks in liquidity and profitability.
Stability from risk management and flexible policies
Report of VIS Rating affirmed that in the first 9 months of 2024, the Vietnamese banking system maintained stability in asset quality, despite the impact of storm Yagi and market pressure.
Total outstanding credit in storm-affected areas accounts for only about 1% of the industry, thanks to lending restrictions in damaged northern provinces.
The State Bank of Vietnam (SBV) has promptly introduced support measures such as debt restructuring and providing low-interest loans to affected borrowers, helping to reduce the debt repayment burden for customers. As a result, the bad debt ratio of the whole industry remained at 2.4% compared to the previous quarter, ensuring stability throughout the system.
Large banks, especially state-owned banks, recorded a decrease in the ratio of newly arising overdue debts thanks to improvements in large bad debts and strict credit management. For example, VietinBank (CTG) and Vietcombank (VCB) achieved positive results thanks to efforts to recover debts and reduce credit costs.
While large banks remain stable, small and medium-sized banks such as PGBank (PGB), SaigonBank (SGB), and some other commercial banks are under more pressure.
Return on assets (ROAA) decreased from 1.6% to 1.5% due to narrowing net interest margin (NIM) and rising credit costs.
Notably, from mid-October 2024, overnight interbank interest rates increased by 3.5%, to an average of 6%. This affected small banks that depend on short-term funding and increased interbank borrowing.
According to VIS Rating, nearly 30% of banks are assessed to have weak asset risk profiles, up from 22% in 2023. This shows the increasing pressure on small banks to maintain stability and profitability.
VIS Rating expects credit growth, especially in the home loan sector, to help banks improve profitability and stabilize asset quality. For banking groups such as Techcombank (TCB), MBBank (MBB), and ACB, there is a clear differentiation in profitability. Some banks benefit from strategies to reduce credit risk and increase debt collection.
Thanks to restructuring and capital raising measures, large banks are also aiming to retain capital through stock dividends. This not only helps strengthen risk buffers but also supports long-term financial stability.
Expectations for year-end recovery
VIS Rating forecasts that the credit growth rate and banking industry profits will improve in the fourth quarter of 2024, with the expectation that the industry's ROAA will reach 1.6% for the year. Large banks continue to play a leading role, leading the stability and development of the financial market.
However, the report also said that liquidity risks are increasing as small banks increasingly rely on short-term market funding amid rising interest rates.
The demand deposit ratio (CASA) remained stable at 19%, but the industry-wide loan-to-deposit ratio (LDR) remained high at 106%.
The industry-wide tangible equity to total tangible assets (TCE/TA) ratio remained unchanged from the previous quarter at 8.8%, indicating limited room for capital improvement.
Notably, the industry-wide average Loan Life Coverage Ratio (LLCR) is 83%, but many small and medium-sized banks are still below this average, increasing the risk if there is no timely solution.
"The Vietnamese banking system in the first 9 months of 2024 shows a multi-dimensional picture: both stable under pressure and struggling to adapt to new challenges. In this context, the coordination between regulatory policies and risk management capacity will determine success in protecting the interests of the financial system and supporting sustainable economic development" - VIS Rating's report concluded.
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