Vietnam Banking Sector: Driving Through Crosswinds

The banking sector experienced substantial earnings volatility in both credit and non-credit segments in 2023. Nearly 80% of banks’ earnings remained reliant on credit, hence along with the slow credit growth trend, banks’ total operating income expanded modestly at about 4% compared to 2022.

The non-interest income segment, particularly service fee income, took a significant hit due to a series of adverse events in the insurance market, causing a decline in bancassurance revenue for many banks. In 2023, many commercial banks experienced a rise in non-performing loans (NPLs) as borrowers' ability to repay diminished due to economic challenges. This was also accompanied by a slow down in net profit growth across the banking sector, with the exception being state-owned commercial banks with positive profit growth thanks to their healthier loan portfolios and lower provisions for loan losses.

Moving into 2024, banks are set to benefit from an expansionary monetary policy, recovering credit demand, and loan forbearance measures. Nevertheless, the decline in system-wide asset quality persists into 2024, raising serious concerns for the banking sector.

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