What’s new in this issue?

Overall, Vietnamese banking system experienced a relatively stable year in 2018. The sector recorded moderate credit growth. Sectors that could threaten the stability of the system such as non-production loans including high-end real estate, consumer loans and black credit market are to be closely monitored.

Macroeconomics, which provide the environment for the banking system, experienced a stable period with the highest GDP growth since 2012, tightly controlled inflation rate and the positive foreign inflows via trade and overseas remittance.

With only 6 months to go until 2020, Vietnam plans to speed up restructuring with multiple regulatory changes throughout the financial system. In this 2019 Banking Report, we aim to provide you with the latest industry updates, along with our local insight and analyses, to help you understand the unique opportunities and challenges that the Vietnamese banking system is facing.  

Credit growth has slowed down to 14% at YE2018 from 18% at YE2017

Credit registered a modest 14% YoY growth in 2018 after three consecutive years of high growth and targets to be the same in 2019. Capital adequacy requirements play a strong role in managing the growth, as banks cannot aim for high credit growth if they do not fulfill Basel II CAR requirements before 2020. Additionally, SBV increases its scrutiny on the growth of the real estate and consumer finance market.

In fact, the consumer finance market – the growth engine in the last few years – also underwent a slowdown with the maturity of the market, increased competition among banks and finance companies, and (still in drafts) amendments to restrict housing and cash loans. 

In line with the SBV’s priority to improve credit quality and reduce bad debts, reported NPL overall experienced a downward trend. 

Due to the latent nature of NPL and relatively low credit growth compared to previous years, which decreases the size of the base, reported NPL registered at 1.91% in 2018 compared to 1.99% in 2017. Nevertheless, overall Vietnam has been reporting progress on combating the problem of bad debt, with results from VAMC and especially the success of the Resolution 42. During the period of 2012-Q12019, about VND907,300bn or USD39.02bn of bad debt has been resolved, 25% of which were credited to the impact from Resolution 42.

Undercapitalization continued to be a pressing issue for banks when currently reported CAR dropped slightly to 12.14% in 2018.

Despite relatively modest credit growth, the system has still experienced a downward trend of CAR. Aside from a handful of listing and M&A activities, most banks still have not fulfilled their capital raising plans. By 1H2019, only eight banks including TCB, VIB, ACB, VPB, VCB, OCB, MBB & TPB have met Basel II CAR requirements.

Banks showed strong profitability performance

Although 2018 recorded NIM at only 2.8%, lower than the two previous years, overall profitability including fees and non-interest income showed an uptick, in line with the sector’s development plan.

Banks are required to list on the stock market by 2020.

As announced by Decision 242/QĐ-TTg on Restructuring the Stock and Insurance Markets by 2020 with a vision to 2025, all local commercial banks must be listed by 2020. Furthermore, banks face pressures to list to mitigate the undercapitalization issue. Banks which are sizeable in terms of asset size, strengths in retail banking with a sound fundamental performance would find it most beneficial to be listed soon in 2019-2020. However, this remains a big challenge when banks need to have a clear growth story to attract foreign investors’ interests.

Little M&A activities have been recorded since 2H2018 and 1H2019

By 1H2019, there remains 45 commercial banks in total – 4 SOCBs, 31 JSCBs, 1 JV and 9 foreign banks. The government has indicated the commitment to sector consolidation by ceasing to grant licenses to new foreign banks in Vietnam, but instead to encourage strategic investors to take on 100% of one of the zero-VND banks or to buy shares of existing banks. However, due to reasons regarding FOL and minority shares for strategic investors, plus the expected expenses in both resolving the existing bad assets and capital contribution, there has been little M&A activities since 2H2018 to 1H2019.

Vietnam plans to speed up restructuring with multiple regulatory changes throughout the financial system.

Overall, Vietnam is preparing to do an overhaul of the financial system, as the Restructuring Plan of the Financial System 2016-2020 comes closer to the deadline and getting ready for the next phase: raising competitiveness against international and overseas banks and implementation of international standards such as IFRS instead of VAS.