Vietnam Banking Report 2024

Post-COVID-19, the Vietnamese banking sector navigates a dynamic economic landscape with a blend of challenges and opportunities. Key issues include subdued credit growth, rising non-performing assets and increased competition from fintech startups, pressuring traditional banks to innovate and invest in technology and cybersecurity. However, the sector stands on the brink of a transformative digital revolution. Open banking, AI generative technologies, and ESG-driven green finance present unparalleled growth opportunities. Open banking promotes seamless integration and data sharing, AI enhances personalised banking experiences, and ESG criteria drive sustainable finance initiatives. This convergence of technological and sustainable advancements heralds a new era of value creation and positive societal impact for the banking industry. 

This report is a comprehensive analysis, offering a deep dive into the current state and future outlook of Vietnam's banking sector from pre-pandemic until the conclusion of the first quarter of 2024. It covers a wide range of key topics that are shaping the industry's landscape as we progress through 2024. 

• Credit Growth Performance in 2023 and 2024 Outlook: Assessing the banking sector's performance in credit growth, including systemwide credit outstanding, segment-specific growth, and individual bank performance. Projections for 2024 are also examined. 

• Deposit Growth Performance in 2023 and 2024 Outlook: Evaluating the banking sector's performance in deposit growth, covering overall deposit growth, funding structure, segment-specific deposits, and individual bank funding structures. Expectations for 2024 are explored. 

• Asset Quality and Loan Loss Coverage: Analyzing the current state of asset quality in the banking system and individual banks, along with loan loss coverage, accrual interest, and write-offs. Future trends are discussed. 

• Liquidity and Financial Stability: Examining the banking system's liquidity, including interbank rates, government bond yields, money supply growth, and the balance between short-term deposits and medium-to-long-term loans. 

• Operational efficiency: Assessing the evolution of banks' operational performance over the past year and deriving insights from the market. 

• Earnings Quality: Evaluating the earning quality of listed banks, income structure breakdown, factors contributing to the sector's slight net interest margin (NIM) recovery, individual banks' NIM and gross fee and commission income performances, and earnings outlooks from credit and non-credit activities. 

• Profitability: analyzing profitability metrics for the banking sector and individual banks, including profit after tax, return on assets (ROA), and return on equity (ROE). 

• Capital Adequacy: Comparing Vietnam's CAR with regional peers in APAC, and examining CAR levels for individual banks adhering to Circular 41/2016/TT-NHNN as of 2023. 

• Key market and development trends: Highlighting the latest key market and development trends such as digital transformation, green finance and implications for the subsequent development of the Vietnamese banking sector  

• Regulatory Developments and Implications: Exploring recent regulatory changes and their implications for the banking sector. 

Below is a summary of key findings from the report. 

Credit growth experienced a persistent slowdown throughout 2023 and the first quarter of 2024, primarily attributed to the economy's limited capacity to absorb capital. 

In 2023, Vietnam's credit growth reached 13.8%, driven by a significant year-end boost in non-production sectors like real estate, despite early-year sluggishness due to reduced private investment and consumer demand. The State Bank of Vietnam aims for a 15% credit growth in 2024, though the first quarter saw a modest 0.26% rise. With robust system liquidity and early signs of export and import recovery, the sector anticipates a more robust economic rebound and subsequent credit growth in the latter half of 2024.  

NPL formation rates remained high, signalling the further deterioration of banks’ asset quality 

In 2023, Vietnamese banks faced significant challenges with rising non-performing loans (NPLs), which climbed from mid-year and reached concerning levels by year-end, reflecting deteriorating asset quality due to unfavourable economic conditions and difficulties in selling the collateral. This led to a decline in the industry's reserve cushion as NPLs outpaced provisions. The extension of Circular 02/2023/TT-NHNN provided some relief by easing bad debt pressures on balance sheets, but the increase in the Accrued Interest/Earning Asset ratio highlighted ongoing risks in loan book quality.  

Commercial banks encountered profitability challenges in both their credit and non-credit operations. 

In 2023, Vietnamese commercial banks faced profitability challenges in credit and non-credit operations, with Total Operating Income only seeing modest growth. The insurance advisory scandal impacted bancassurance revenue, and new legislation prohibiting the bundling of insurance products with banking services will further pressure fee and commission income. Despite reductions in mobilization costs and interest rates, net interest margins (NIM) declined due to sluggish credit growth. Smaller banks faced significant liquidity challenges, while those with strong CASA ratios and retail lending maintained better NIMs. Amidst these pressures, the sector saw a notable decline in earnings growth across non-credit segments. 

For a detailed overview of the report's contents, we would like to provide you with the Demo.

Table of contents and summary of key findings and be found HERE. 

You can also check out other reports covering key sectors of Vietnam including Cold Chain, Consumer Finance, Banking, Healthcare, Housing Builders, and Plastic etc. on our website: http://fiinresearch.vn