Vietnamese Banking System Prospects Assessed Positive by Fitch Economists

Diep Nguyen

09:24 04/12/2019

BizLIVE -

Fitch’s outlook reflects sustained earnings momentum in 2020 for Vietnam’s banking sector, with continued strong growth in higher-yielding retail loans likely to offset modest increases in credit costs as loans season.

Vietnamese Banking System Prospects Assessed Positive by Fitch Economists
Fitch’s Sector Outlook: Stable
Fitch’s outlook reflects sustained earnings momentum in 2020 for Vietnam’s banking sector, with continued strong growth in higher-yielding retail loans likely to offset modest increases in credit costs as loans season. 
Rapid loan growth could lead to future asset-quality issues in the event of a less-benign environment. Nevertheless, Fitch expects economic growth to remain healthy, which should contain downside risk to the banks’ asset quality.
Rating Outlook: Positive
Vietnam’s state-owned banks are on positive outlook, in line with the sovereign outlook. This reflects our expectations that there is a growing ability on the part of the sovereign to provide extraordinary support to the banks, if required, and no diminished propensity for the state to support the larger banks. Beyond this, Fitch believes that the rating profiles should continue to be supported by robust economic growth in the near term.
What to Watch
Further Write-Downs of Legacy Exposures
Certain banks may continue to write down legacy exposures, taking advantage of rising profitability and sustained improvement in the operating environment. This should help keep the reported problem-loan ratios relatively stable. Nevertheless, we believe that system legacy NPLs remain under-reported, with potential asset-quality issues also masked by high credit growth.
Rising Risk in Consumer Lending
Consumer lending has been growing rapidly in recent years, and has become an area of potential future stress. Some smaller banks have also been active in the unsecured and micro-consumer loans segment, where borrowers tend to be higher risk than traditional banking clients. Sustained rapid credit growth could present new asset-quality issues in the event of a less robust economy.
More Capital Issuance Likely
Capital issuance has risen as banks prepare themselves for Vietnam’s Basel II standards. We expect this trend to be sustained in light of the thin capital buffers and persistently high credit growth. However rising total capital adequacy ratios might not be a sign of increasing buffers if the.
Tier 2 that is raised is not fully loss absorbing. Basel II could exert pressure on the banks to price risk and manage capital better, but this is likely to pan out over the longer term.
Credit Growth Uptick; Stable Liquidity Conditions
Credit growth has moderated in recent years, due in part to the impending adoption of Basel II. Fitch expects loan growth to be slightly stronger in 2020 – at 14%, from a projected 13% in 2019. Retail lending should remain the key driver. This should push up the system loan-to-deposit ratio slightly, but liquidity conditions should remain generally stable in 2020.

DIEP NGUYEN

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