Robust medium-term economic prospects in Vietnam will continue to provide a conducive operating environment for banks, supporting their credit profiles, says Fitch Ratings.

A customer at a PVCombank branch in Hanoi. Photo: Pham Hung

Vietnam's banking sector has performed above Fitch's expectations despite a second consecutive year of slower economic growth in 2021, it noted. Rapid loan growth and improved lending margins provided strong revenue tailwinds that enabled the Fitch-rated banks to boost credit provisions and build up capital buffers. Asset quality has also held up well amid regulatory forbearance and brisk credit growth.

“The resilience of the banking sector over the past two years and prospects of a more robust economic recovery in the medium term led us to revise Vietnam's operating environment (OE) score to 'bb-' from 'b+',” Fitch informed. 

An OE score in the higher category in turn results in broadly higher financial profile scores, which prompted Fitch to upgrade the Viability Ratings (VRs) of three local banks in December.

However, thin capitalization remains a key rating weakness for Fitch’s portfolio of Vietnamese banks, and this is aggravated by banks' pursuit of rapid loan growth to fuel earnings.

Despite the pandemic’s severe economic impacts, many Vietnamese banks posted impressive business results with pre-tax profit exceeding VND10 trillion (US$441.2 million), including two with profits exceeding the $1-billion mark.

In this regard, Techcombank becomes the second in Vietnam reaching the $1-billion profit, only behind Vietcombank. Vietinbank remained third with VND17.5 trillion ($772 million), up 2.7% year-on-year.

With high profits, commercial banks have allocated millions of dollars to support customers and the economy affected by the pandemic in form of lowering interest rates and rescheduling debt payments.

A report from the Vietcombank Securities Company (VCBS) suggested the average pre-tax profit of the banking sector in 2022 would stay positive but remain uneven among banks, saying those with potential 20% profit growth are BIDV, Military Bank, Techcombank, ACB, or MSB.