Recently, Fitch Ratings just released a new report named "Vietnam Banks' Performance Improves with Economic Recovery" which highlights easing pressure on asset quality and profitability on the back of an improving economic outlook.
Vietnam's GDP growth accelerated to 2.6% yoy in the third quarter (2Q20: 0.36%), and the job market is on the mend after the coronavirus-induced economic shock. The CRA expects the economy to continue to recover, helped by well-controlled local coronavirus infection rates. This bodes well for borrowers' debt-servicing capacity, and underpins the banking system's profitability in the near term.
The problem-loan formation rate has declined since 2Q20 and the reported asset-quality metrics are expected to continue to benefit from regulatory relief on loan classification for pandemic-affected exposures - which is likely to remain in effect until late into 2H21. Nevertheless, we look beyond purely non-performing loan (NPL) metrics when assessing the banks' asset quality. Banks have also booked higher credit provisions in 9M20 to reflect higher asset-quality stress. Better operating-cost control has mitigated these provisions to buttress profitability so far.
Capitalisation for Vietnamese banks remains thin for the given risks in the local operating environment. Nevertheless, the recovery in economic activity and banks' profitability should generate sufficient retained earnings to support near-term growth to keep capital ratios stable.
Access the detail report: Fitch Ratings: Vietnam Banks' Performance Improves with Economic Recovery