Post-COVID-19, the Vietnamese banking sector the Vietnamese banking sector has navigated a dynamic economic landscape with a blend of challenges and opportunities. In 2023 and early 2024, the banking sector continued to face subdued credit growth, rising non-performing assets, and increased competition from fintech startups, all pressuring traditional banks to innovate and evolve. However, the sector stands on the brink of a transformative digital revolution. Open banking, AI-driven technologies, and ESG-focused green finance present unparalleled growth opportunities, offering the potential to reshape the industry and drive sustainable growth.

This report is a comprehensive analysis, offering a deep dive into Vietnam's banking sector's current state and outlook. It comprehensively covers the essential topics shaping the industry's landscape through 2024 and the coming years.

• Credit Growth Performance in 2023 and 2024 Outlook: Assessing the banking sector's performance in credit growth, including systemwide credit outstanding, segment-specific growth, and individual bank performance. Projections for 2024 are also examined.
• Deposit Growth Performance in 2023 and 2024 Outlook: Evaluating the banking sector's performance in deposit growth, covering overall deposit growth, funding structure, segment-specific deposits, and individual bank funding structures. Expectations for 2024 are explored.
• Asset Quality and Loan Loss Coverage: Analyzing the current state of asset quality in the banking system and individual banks, along with loan loss coverage, accrual interest, and write-offs. Future trends are discussed.
• Liquidity and Financial Stability: Examining the banking system's liquidity, including interbank rates, government bond yields, money supply growth, and the balance between short-term deposits and medium-to-long-term loans.
• Operational efficiency: Assessing the evolution of banks' operational performance over the past year and deriving insights from the market.
• Earnings Quality: Evaluating the earning quality of listed banks, income structure breakdown, factors contributing to the sector's slight net interest margin (NIM) recovery, individual banks' NIM and gross fee and commission income performances, and earnings outlooks from credit and non-credit activities.
• Profitability: Analyzing profitability metrics for the banking sector and individual banks, including profit after tax, return on assets (ROA), and return on equity (ROE).
• Capital Adequacy: Comparing Vietnam's CAR with regional peers in APAC, and examining CAR levels for individual banks adhering to Circular 41/2016/TT-NHNN as of 2023.
• Key market and development trends: Highlighting the latest key market and development trends such as digital transformation, green finance and implications for the subsequent development of the Vietnamese banking sector
• Regulatory Developments and Implications: Exploring recent regulatory changes and their implications for the banking sector.

Below is a summary of key findings from the report.

Credit growth experienced a persistent slowdown throughout 2023 and the first quarter of 2024, primarily attributed to the economy's limited capacity to absorb capital.

In 2023, Vietnam's credit growth reached 13.8%, driven by a significant year-end boost in non-production sectors like real estate, despite early-year sluggishness due to reduced private investment and consumer demand. The State Bank of Vietnam aims for a 15% credit growth in 2024, though the first quarter saw a modest 0.26% rise. With robust system liquidity and early signs of export and import recovery, the sector anticipates a more robust economic rebound and subsequent credit growth in the latter half of 2024.

NPL formation rates remained high, signalling the further deterioration of banks’ asset quality

In 2023, Vietnamese banks grappled with rising non-performing loans (NPLs), which surged from mid-year, reflecting worsening asset quality due to unfavourable economic conditions. Banks reinforced their provision buffers to absorb high potential credit risk, but this eroded profits due to increased risk costs. The extension of Circular 02/2023/TT-NHNN provided some relief by easing bad debt pressures on balance sheets. However, the rise in the Accrued Interest/Earning Asset ratio highlighted ongoing risks in loan book quality.

Commercial banks encountered weakened earnings in both their credit and non-credit operations.

In 2023, Vietnamese commercial banks experienced modest growth in operating income. The slowdown in credit income growth, coupled with an insurance advisory scandal, adversely impacted bancassurance revenue. Additionally, new legislation prohibiting the bundling of insurance products with banking services is expected to further pressure fee and commission income.

Open banking, AI-driven technologies and green finance present unmatched growth prospects

The sector is poised for a transformative digital revolution. Open banking facilitates seamless integration and data sharing, and AI enhances personalized banking experiences. Meanwhile, ESG criteria promote sustainable finance initiatives. This convergence of technological and sustainable advancements signals a new era of value creation and positive societal impact for the banking industry.