2025 Credit Outlook | Bank credit fundamentals will continue to improve in 2025

VIS Rating - An Affiliate of Moody's presents our Credit Outlook for 2025 – Vietnam Banks

Vietnam Banks 2025 Credit Outlook:

☑️ In 2025, we expect the credit fundamentals for banks in Vietnam to improve modestly following the recovery trend in 2H2024, driven by various government policies implemented to maintain macroeconomic stability amidst volatile external conditions and resolve industry bottlenecks.

☑️ Higher public investment, resilient FDI inflow and trade surplus, and continued efforts by the authorities to resolve legal issues will drive domestic business expansion and higher credit demand. We expect borrowers operating cash flows and debt serviceability to improve over the course of 2025.

Improving bank credit fundamentals from stronger domestic business activities and government supportive measures

Source: VIS Rating

“State-owned banks and several large banks will drive asset quality and profit improvements for the banking sector amid stronger domestic business activities in manufacturing, trade, construction, and real estate – the key sectors that banks lend to. 

Nonetheless, small and a few mid-sized banks may face multiple challenges to lift profitability to afford higher credit costs and address asset quality issues, driven by uneven real estate market recovery, lending competition, higher deposit costs amid currency pressures,” – Phan Duy Hung, CFA, MBA – Director – Senior Analyst, VIS Rating.

Governance risks will continue to weigh on banks’ asset quality

Most of banks’ connected parties are from real estate services and construction sector

Note: Sector numbers include 24 privately-owned commercial banks

Source: Bank data, VIS Rating

Deposit competition and currency pressures will increase funding costs and liquidity challenges for a few small banks

Source: VIS Rating

Governance risks, uneven recovery in the real estate market and volatile external conditions remain our key credit concerns for Vietnam banks.

“Looking ahead, governance risks will continue to weigh on banks’ asset quality, as their close linkages to corporate groups – mostly in the real estate sector – heighten their operational risks and vulnerability to large corporate events. 

In addition, we expect deposit competition to intensify as credit demand increases, and small banks that rely heavily on short-term market funds and have weak liquid asset buffers will be vulnerable to higher funding costs and liquidity challenges,” – Nguyen Duc Huy, CFA – Associate Analyst, VIS Rating.

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