Most banks will still lack sufficient capital to meet stricter Basel II requirements that take effect in 2020, so capital raising, primarily from foreign investors — due to the underdevelopment of the domestic capital markets — will be a key focus for banks in 2019, according to credit rating firm Moody’s.
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In its latest report, Moody’s stated that Moody's-rated banks in Vietnam have shown higher profitability through wider net interest spreads and lower credit costs, which led in turn to improvements in asset quality, because the banks utilized the profit growth to write off remaining legacy problem loans.
"For 2019, Vietnamese banks that Moody's rates will achieve a further improvement in profitability, again because of wider net interest spreads and lower credit costs," says Rebaca Tan, a Moody's Analyst.
"Credit growth will stay stable over the same period because of tighter control by the State Bank of Vietnam, and asset quality will improve further, as the banks continue cleaning up their balance sheets," adds Tan.
The banks' capitalization will strengthen because of stronger profitability and stable credit growth.
Moody's-rated banks in Vietnam achieved a higher aggregate return on assets for a second year running, registering a rise of 1.1% in 2018 from 0.9% in 2017.
Aggregate net income for the banks rose 35% to VND70 trillion (US$3 billion) in 2018 from the previous year, despite a moderation of credit growth.
In a report released in September 2018, Fitch Ratings also expected that the Vietnamese banking system could face a capital shortfall of almost US$20 billion, equal to 9% of the country’s GDP to meet the requirements on capital adequacy ratio (CAR) following Basell II standards, which is scheduled for implementation on January 1, 2020.
Banks are likely to step up capital issuance over the next 18 months, which could improve the credit profiles of rated banks if it results in a meaningful and sustained increase in capitalization. However, a lack of depth in domestic capital markets may create challenges, particularly as some banks are close to or at the limit for foreign ownership, stated Fitch.
