Vietnamese banks are slowly gaining confidence to lend

Amidst ongoing financial reform.

In the midst of the ongoing financial reform, the government has also successfully steered the economy to recovery following past economic policy missteps that led to a period of high inflation in the country.
According to a research note from BMI Research, Vietnam's real GDP growth came in at 6.3% in H115, and appears on course to reach our full-year target of 6.4%.

Meanwhile, inflation has come down to manageable levels, thanks in part to weak crude oil prices. The positive economic outlook and gradually improving banking health have been key factors in the rapid credit growth seen in recent months.

According to the latest data from the SBV, credit grew 18.3% y-o-y in May, the fastest pace since August 2011, reflecting returning confidence in banks to lend. This bodes well for interest income growth over the coming years.

Here’s more from BMI Research:

Burdened by the high level of bad debt and poor corporate governance in the banking system, growth in the 'finance, banking and insurance' industry has been decelerating in real terms.

Multiple attempts have been made under the tutelage of Prime Minister Nguyen Tan Dung and central bank governor Nguyen Van Binh to shore up the banking industry as laid out in the country's financial restructuring roadmap that was drawn up in late 2011.

In particular, ongoing financial reforms have gathered speed, notably as seen in the increasing number of bank mergers and acquisitions since the start of 2015. However, we identify cross ownerships and the slow privatisation drive to be among key factors that will act as a drag on reforms.

As such, we expect the Vietnamese banking sector to get healthier over the coming years amid continued robust economic growth, but banking improvements will likely come at a gradual pace.

Notably, a wave of banking marriages has already swept through the country in recent months, which will lead to a further strengthening of the sector and improve corporate governance, particularly in smaller, unlisted banks.

Indeed, these marriages have strengthened the asset base (or the size) of the merged or acquired entities, allowing them to have better capabilities to cope with bad debts and any financial stress that the sector might encounter in future.

A reduction in the number of banks in the country will also allow for better supervision of the banking system by the State Bank of Vietnam (SBV), which will help to strengthen corporate governance in domestic banks.

Since the start of the year, consolidations have already taken place between Mekong Development Bank (MDB) and Maritime Bank, Southern Commercial Joint Stock Bank and Saigon Thuong Tin Commercial Joint Stock Bank (Sacombank), Mekong Housing Bank (MHB) and Bank for Investment and Development of Vietnam (BIDV) and Vietnam Joint Stock Commercial Bank for Industry and Trade (Vietinbank) and Petrolimex Group Commercial Joint Stock Bank (PG Bank).