Vietnam’s problem loan ratio forecast to decline to 4.8% at end-2020: Moody’s
The stable outlook for Vietnam`s banking system reflects the country`s robust economic performance, which will support asset quality and profitability.
Vietnam's banks have been cleaning up their balance sheets, supporting asset quality, and the systemwide problem loan ratio is expected to decline to 4.8% at the end of 2020 from 5.1% at the end of 2018, said Rebaca Tan, a Moody's Investors Service assistant vice president and analyst, in a latest report.The problem loan ratio has steadily declined from a peak of 9.8% at the end of 2015, as a result of problem asset recoveries and write-offs, as well as credit growth. The ratio will decline more gradually in 2019 than it did during 2017-18 because credit growth will be steady, around 14% set by the central bank.
The report says that Moody’s stable outlook for Vietnam's banking system reflects the country's robust economic performance, which will support asset quality and profitability.
The rating agency expects Vietnam's real GDP growth to moderate to 6.7% in 2019 and 6.5% in 2020 from 7.1% in 2018. Despite a slowdown, even at these projected rates the country will still remain the fastest-growing economy in Southeast Asia, says Rebaca Tan, a Moody's Assistant Vice President and Analyst.
Capital ratios should remain broadly stable over the next 12-18 months, supported by growth in retained earnings, although a number of banks will need to raise capital to meet stricter Basel II capital requirements while sustaining asset growth.
Profitability will improve as the banks increase their lending to the higher yielding retail and small and medium enterprise (SME) segments, while credit costs will remain stable as banks continue to make provisions against legacy problem assets.
The government will continue to provide support when needed, mainly in the form of liquidity assistance and regulatory forbearance, as it has done in the past, Rebaca Tan added.
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