Log in
Business

Vietnam banking sector to suffer in 2020 before rebounding in 2021

Fitch Solutions expected credit growth to weaken to 7% in 2020 from 13.7% in 2019, but the growth is predicted to pick up to 12% one year later.

Vietnam’s banking sector earnings are predicted to weaken in 2020, due to weaker credit growth, rising loss provisioning alongside a worsening of asset quality in a weak economic environment, as well as debt restructuring schemes, according to Fitch Solutions, a subsidiary of Fitch Group.

However, an acceleration in credit growth and an improvement in asset quality in 2021 should support a recovery in earnings in the banking sector, stated Fitch Solutions in its latest report.

 Source: Bloomberg, Fitch Solutions.

In 2020, Fitch Solutions expected credit growth to weaken to 7% in 2020 from 13.7% in 2019. Credit growth as of September 22 was only 5.1% above end-2019 levels. According to Fitch Solutions, this is due to a combination of supply and demand factors over the coming months.

On the demand side, continued uncertainty around the economic outlook will continue to spur businesses to delay capital expenditure, and this will discourage borrowing. On the supply side, tighter lending standards by financial institutions to guard against a build-up of bad loans will also weigh on issuance.

Meanwhile, Fitch Solutions expected banks to increase their loan loss provisioning in anticipation of a worsening of asset quality due to weak economic growth in 2020.

It forecast real GDP growth to weaken to 2.6% in 2020, from 7.0% in 2019, while there is the risk of the weak economic environment seeing the sector-wide non-performing loan ratio rise higher in 2020, from 1.9% at the end of 2019.

Between January and September 2020, more than 38,600 enterprises have temporarily suspended operations, up 81.8% year-on-year. Of this number, retail trade saw the largest absolute increase to 14,400, from 8,211, up 75.3% year-on-year, while real estate businesses saw the largest proportionate increase among all sectors at 161.4% to 1,103 enterprises over the period.

The number of business bankruptcies remained fairly flat on aggregate across the sectors over the first nine months of 2020. Although many sectors saw a fall in bankruptcies in 2020 versus 2019, the real estate sector bucked the trend and bore the brunt of the increase in business bankruptcies, with real estate bankruptcies rising to 696, up 50.3% year-on-year.

 

Debt restructuring schemes to reschedule debt repayments for companies unable to fulfil their obligations due to the Covid-19 outbreak, as well as possible exemption and reduction of interest and fees for delinquencies due to the pandemic, will also have a negative impact on bank earnings, Fitch Solutions suggested.

Nevertheless, as Fitch Solutions expected Vietnam’s GDP growth to reaccelerate to 8.2% in 2021, it predicted credit growth to pick up to 12%. An improvement in business revenues and debt repayment will also be positive for asset quality and reduce the need for loss provisioning, which will support earnings.

Reactions:
Share:
Trending
Most Viewed
Related news
Hanoi's push for green agriculture bears fruit

Hanoi's push for green agriculture bears fruit

Thanks to Hanoi’s support, local farmers are gradually changing their production practices, contributing to the development of a more sustainable living environment.

Vietnam acts to boost imports of US farm produce

Vietnam acts to boost imports of US farm produce

Vietnamese businesses are urged to build brands and meet the stricter environmental standards of major markets such as the US, EU, and Japan

Over US$682 billion in credit poured into Vietnam's economy by mid-April

Over US$682 billion in credit poured into Vietnam's economy by mid-April

The government has also instructed banks to facilitate access to credit to promote production and business development.

Vietnam accelerates private sector reform under new policy directive

Vietnam accelerates private sector reform under new policy directive

Prime Minister Pham Minh Chinh requested draft special mechanisms that encourage all contributors, including households and individuals.

Vietnamese Gov't to submit strong private sector support to parliament

Vietnamese Gov't to submit strong private sector support to parliament

Priority should be given to impactful reforms that act as catalysts, leverage points, and anchors for unlocking resources and boosting productive capacity.

Vietnam prepares $19.2 billion loan package for digital transformation

Vietnam prepares $19.2 billion loan package for digital transformation

The package will target prioritized projects identified by commercial banks based on recommendations from agencies and local authorities.

Vietnam seeks to boost imports from US: Trade minister

Vietnam seeks to boost imports from US: Trade minister

The products Vietnam seeks to import align with US strengths and match Vietnam’s growing needs.

Vietnam businesses invest US$161 million in green projects last year

Vietnam businesses invest US$161 million in green projects last year

Scaling up high-quality carbon credit supply, supported by clear and consistent policy frameworks and adequate infrastructure, is essential to attract investment.