Outlook on Vietnam banking system changed to stable from positive

ABO/NDO – The 12-18 month outlook on the banking system in Vietnam was changed to “stable” from “positive”, according to the latest report by Moody’s Investor Service on Vietnamese banks.

Moody's states that Vietnamese banks will show enhanced asset quality over the next 12-18 months (illustrative image).

The stable outlook is based on Moody's assessment of six drivers: operating environment (stable); asset risk (improving), capital (stable); funding and liquidity (stable); profitability and efficiency (improving); and government support (stable).

Entitled “Banking System Outlook - Vietnam: Economic growth and improving asset quality support stable outlook," the report stated that economic growth in Vietnam will remain robust and the banks' asset quality will improve, helping to strengthen their profitability.

 

Regarding the operating environment, the service stated that strong economic growth in Vietnam will support the banks' operating environment.

 

Moody's stated that Vietnamese banks will show enhanced asset quality over the next 12-18 months, as strong economic growth will translate into improvements in borrower repayment capabilities and enable the banks to accelerate the write-offs of legacy problem assets.

 

The banks' capitalisation will prove broadly stable and funding will remain stable as loan growth slows, said the report.

 

Vietnamese banks will also show better profitability because interest margins will continue to improve, as the banks boost loans in the higher-yielding retail and small and medium-sized enterprise sectors.

 

The service noted that the Vietnamese government will continue to support the country's banks when necessary, mainly in the form of liquidity assistance and forbearance from the central bank.
Moody's rates 16 banks in Vietnam, which accounted for 61% of the total banking system assets at the end of 2017.