An increase in non-performing loans in the wake of a credit-fueled property bubble over the last five years has put pressure on Vietnamese banks’ capital ratios, Credit Suisse
has said on The Financialist.
The Swiss bank warns that if lending continues at the pace of the last several years, four of the six largest banks will have capital adequacy ratios (CARs) of less than 10% by the end of 2016. The State Bank of Vietnam fixes the minimum CAR at 9%.
Furthermore, the Vietnamese government has tapped 10 major banks to implement Basel II capital requirements, and Credit Suisse believes capital ratios could fall by up to three percentage points as banks put the more stringent requirements in place.
That would leave half of the six largest banks with capital ratios below the 9% level that international banking standards require, necessitating capital raises of between $400 million and $900 million (or between 8% and 35% of their market caps) to come into compliance.
Credit Suisse expects Vietnam’s GDP
to grow 6.3% in 2017, the third-fastest rate of growth in emerging market economies after China (6.6%) and India (7.8%), given the country’s growing popularity as a global manufacturing hub.
Even as Vietnamese exports slow due to a slowdown in the U.S. and China, Credit Suisse analysts note that burgeoning domestic consumption is helping sustain economic expansion – a growth pattern the bank’s analysts call “slower, but safer.”
The bank notes that Vietnamese export growth has outstripped that of non-Japan Asia by between 10 and 15 percentage points for the last five years, and foreign investors are still flocking to the country.
Credit Suisse expects total foreign direct investment (FDI
) of $13 billion this year, still quite strong, albeit down from a spectacular $14.5 billion in 2015.