The Vietnamese banking sector has gone through an eventful 2021 with watershed moments characterized by the evolution of COVID-19. The first half was dominated by a devastating fourth COVID wave that challenged growth and eroded banks’ asset quality. However, the second half witnessed the sector come round along with the resumption of production and recovery in consumer spending. The pandemic somehow motivated banks to become more proactive, adaptive and innovative. Although risks and uncertainty remain persistent, the worst is over, the sector is set to benefit from the economic recovery, government supportive policies and the fruit of digital transformation, hence promises to thrive in the coming years.

Credit growth recovered strongly in the first 6 months of 2022, fueled by the rebound of economic activities and surging capital demand

Credit growth accelerated in the first half of 2022 which almost doubled the previous year’s level. Credit demand thrived, as businesses had gradually restored their full capacity to meet the surge in consumption and spending in the economy. Looking forward, the credit growth is expected to achieve the target of 14% thanks to the strong credit demand from both firms and individuals. Besides, the government interest support package worth VND40trn will boost credit to selected hard-hit sectors, helping them to recover from the pandemic.

Idle money is flowing back to the banking system following the pick-up in the deposit rates

To accommodate the acceleration in credit growth, commercial banks have been raising deposit rates to capture more funding from the public. As a result, customer deposit growth rebounded with the surge in both wholesale and retail deposits. Besides, the cooling down of other investment channels, especially bond and stock investment, also stimulated the return of idle capital to the banking system. The strong flow of deposits is expected to linger in the remaining months of the year.

The NPL ratios declined in the first quarter of 2022

The NPL ratios tend to decline thanks to the improved credit quality of borrowers after the reopening of the economy and increasing credit demand under the new normal. However, upon the expiration of the loan forbearance policy by the end of June 2022, the on-balance sheet NPL might increase by the end of this year mainly due to the full reclassification of COVID-restructured loans but would be well contained and addressed by local banks thanks to the improved credit quality of borrowers after the reopening of economy and their strong loan loss coverage to absorb the future loss.

Banks might face NIM levelling off in 2022

NIM would witness a decline due to hikes in deposit rates as the liquidity is not abundant in the context of increasing credit demand and SBV direction to contain inflation risks. Fee and commission income (especially those from bancassurance) continues to be a stable and non-risk income for banks in the coming years.

Digital transformation bloomed in the banking sector

Digital transformation continues to be the backbone of most local banks’ long-term strategies to increase their target customer base, improve the customer experience, and optimize their end-to-end business operations. The recent notable digital transformation initiatives by commercial banks included the adoption of e-KYC, digital lending, credit scoring and cloud computing that allowed for their complete and efficient front- and back-office operations.