According to the Viet Dragon Securities Company (VDSC), low bad debt ratios, recovery in non-interest income, and sound control over credit risks will drive the stable development of the banking industry in the second half of 2022.

The industry continued to see bright spots in business results in the first half, but some growth drivers will become uncertain in the second half.

Credit growth has been among the main drivers of growth in the private banking group over recent years. However, VDSC believes that this is now potentially at risk since policy orientations are not specific.

It said that although the State Bank of Vietnam (SBV) has committed to maintaining credit growth at 14 per cent, it remains uncertain about the size, frequency, and timing of limit granting and distribution among banks.

Therefore, a change in credit policy may lead to a slight deviation in credit growth between banks, taking away the growth advantage of some private banks.

An increase in interest rates is inevitable in the near future. VDSC’s analyst expect a wave of interest rate hikes will continue over the next few years, but the pace will be slow.

Interest rate competition is likely to occur at smaller banks, putting pressure on net interest margins (NIM) due to the changing cost environment. Combined with the term structure, State-owned banks will benefit from higher listed deposit rates.

According to VDSC, unexpected developments leading to hesitation in granting new credit growth limits and limit allocation among banks have affected forecasts on growth in 2022. However, while some growth drivers have become uncertain due to the macro-economic context, there are other factors that ensure stable development.

Regarding bad debts, the ratio is forecast to increase in the second half of the year and in 2023 but will actually be unchanged from pre-Covid-19 levels due to the structural debts and the normalization of bad debt groupings. The space and ability to continue to reduce credit risk costs will differentiate banks.

VDSC expects a relative decline in structured debt, putting pressure on bad debt formation and debt forgiveness. Coverage rates may fall at State-owned banks due to outstanding corporate loans but the health of balance sheets will not be affected overall.