A view of a SGB’s transaction office. Small banks showed the most significant asset quality deterioration. (Photo: icom.com.vn)

Under a H1 2024 report on the banking industry, released this week, analysts of credit rating agency Vietnam Investors Service (VIS Rating) said the Vietnamese banking industry’s problem loans ratio remained flat quarter-on-quarter (QoQ) at 2.2%, with the highest asset quality deterioration observed in small banks.

Banks’ return on average assets (ROAA) rose slightly to 1.6% in the first half of 2024 from 1.5% in 2023, driven by stronger corporate credit growth and higher net interest margin (NIM). Several small banks are more vulnerable to liquidity risks due to their higher use of short-term market funds amid sluggish deposit growth.

“We expect banks’ asset quality and profits will remain stable in H2 2024 amid stronger operating conditions,” VIS Rating’s analysts noted in the report.

According to VIS Rating, small banks showed the most significant asset quality deterioration.

NVB, BAB, SGB and VBB exhibited higher-than-peer non-performing loan (NPL) formation rates, mainly from retail and SME borrowers. Among State-owned banks (SOBs), construction and real estate-related sectors drove higher NPLs for CTG and BID.

Several large banks reduced their problem loans by writing off their VAMC bonds (such as VPB) or large NPLs (such as MBB). TPB’s NPL formation rate remained low through tighter underwriting of new consumer finance loans.

VIS Rating’s analysts expect a low interest rate environment and policy measures aimed at supporting business activity in various sectors to help support debt serviceability and slow loan delinquencies.

Large private banks benefitted most from higher credit growth and wider NIM. TCB, HDB, VPB, and LPB recorded stronger loan growth than the industry average of 7.7% as of H1 2024, driven by corporate lending to real estate-related, trading, and manufacturing borrowers. NIMs for these banks rose by 30-60 basis points, leading to higher than industry-average ROAAs of 2.2% on average. Fee income rose for some banks, including TCB, LPB, and TPB.

In contrast, profits for retail-focused banks (such as VIB and OCB) fell due to weak mortgage loan growth, lower investment income, and higher credit costs.

“We expect the sector ROAA will continue to benefit from strong loan demand from corporates, gradual pick-up in mortgage loan as new housing supply enters the market, as well as stable NIMs that are supported by low interest rates,” the report states.

Capital weakened for most banks in H1 2024. Sector tangible common equity (TCE) ratio fell by 0.3% points from prior quarter as several large banks (such as VPB, MBB, ACB, TCB) paid cash dividends to their shareholders.

VIS Rating expects banks’ capital level will remain weak in H2 2024 due to limited capital raising plans. In addition, the sector loan loss coverage ratio (LLCR) declined to 82% from 89% in the first quarter of 2024, with SOBs recording the most significant drop due to higher NPLs. Conversely, LLCR for several private banks rose from improving asset quality and higher provisions.

Sector loan-to-deposit ratio (LDR) rose and small banks faced sluggish deposit growth and increased use of short-term market funds. The sector CASA deposits remained flat at 20% of gross loans. MBB maintained the highest ratio through continued above-industry average growth in its retail deposits.

The sector LDR rose to 106% in H1 2024 from 104% in the first quarter of 2024. Among the small banks, ABB and BVB faced sluggish deposit growth as deposit competition intensified and increased the use of short-term interbank borrowings to support their loan growth. Meanwhile, liquid assets were 21% of total sector assets, unchanged from the prior quarter.

“We note liquid assets for small banks contracted by 6% in H1 2024, in contrast to 5% growth for the sector. Hence, we remain concerned about the vulnerability of small banks to liquidity risks,” the analysts noted./.