Customers at Vietcombank's headquarters at 11 Lang Ha, Hanoi.

It's too early to tell how the ongoing Russia-Ukraine conflict will affect Vietnam's banking sector, said industry experts.

However, the conflict almost certainly will drive oil prices up, disrupt the global supply chain and create inflationary pressure. As a result, firms will likely be more hesitant to make investments, consumers cut back on spending and demand for credit drops.

During 2021, the banking sector reported 146 trillion VND in profit, or 6.39 billion USD, a 33 percent increase year-on-year, mainly from interest and banking fees. The profit trend has been said to likely continue in the near future but the sector's profitability is not without risks.

A large part of future success depends on the banks' ability to recover and restructure debts. Assets tied up in bad debts will likely rise as government measures to support businesses are set to expire at the end of June, said Yuanta Securities, a Taiwanese investment bank.

"In the event of increased bad debts, banks, especially those with already-low loan loss provision, will have to set aside additional provision funds, resulting in lower profitability," said the firm.

Inflation poses another risk to profitability. In the event inflation hits 4 percent this year, most banks are to face 2-4 percent lower profitability, according to Maybank Kim Eng Securities.

This is, however, a worst-case scenario situation, the firms said inflation will likely stay well under the 4 percent mark while there shouldn't be a major surge in interest rates this year by the State Bank of Vietnam (SBV).

As the country has been trying to maintain a recovery path, the SBV has every reason to keep interest rates low to support the economy. Meanwhile, commercial banks must already employ numerous measures to protect and maintain profitability.

The firm forecast an 8 percent interest rate for most commercial banks and slightly higher deposit interest rates at 4.5 percent (from 4 percent in the previous year), which should not affect businesses and the banking sector in a significant manner.

In a draft document to be presented to shareholders in the next meeting, Vietnam International Commercial Joint Stock Bank (VIB) said it has set a target of 10.5 trillion VND in pre-tax revenue, a 31 percent increase from 2021.

Tran Thu Huong, director of VIB's retail unit, said the target was set based on strong confidence in a robust recovery of the economy this year, especially after the Government announced a large support package for 2022 and 2023.

Similarly, Vietnam Maritime Commercial Joint Stock Bank (MSB) has set a target of 6.8 trillion VND in pre-tax revenue, a 34 percent increase from the previous year.

The bank's strategy is to invest and focus on small and medium-sized businesses to boost profitability, as well as digital services to reduce costs, according to Nguyen Hoang Linh, MSB's director-general.

Meanwhile, the "Big 4" - Vietcombank, VietinBank, BIDV và Agribank - have set more conservative year-on-year profitability targets with Vietcombank at 12 percent and Vietinbank at 10-20 percent.

Vietcombank recorded 27.4 trillion VND in pre-tax revenue during 2021, a 19 percent increase year-on-year, making it the most profitable bank in Vietnam./.