Moody's: Vietnam banks show improved solvency, but profitability gap will widen in 2020

Moody’s Investors Service says in a new report that rated banks in Vietnam posted solid profit growth and asset quality improvements in 2019, benefitting from the country's robust macroeconomic environment.

“For 2020, capitalisation will broadly stabilise, as assets grow at a similar pace to the rate of internal capital generation,” said Rebaca Tan, Moody’s assistant vice president and analyst. “As for asset quality, any improvements will be limited.”

Moody’s points out that downside risks to asset quality can arise from disruptions caused by the coronavirus outbreak, which, if prolonged, will lead to increases in non-performing loans in the manufacturing, trade and other sectors, given Vietnam's large exposure and close ties to global supply chains.

“As for profitability, the gap will widen between banks that have adopted the new Basel II capital standards and those that have not,” added Tan.

In particular, Moody’s expects that in 2020, the country’s central bank will grant higher limits for loan growth to banks that have adopted Basel II and maintain good financials. The higher growth limits will translate into larger gains in earnings and widen the profitability gap between banks that have and have not adopted the new capital standard.

However, improvements in profitability will slow overall, as competition drives up funding costs.

Moody’s analysis is based on the latest released results of 16 Vietnamese banks, which together accounted for 61% of the total banking system assets on 30 June 2019.

Re-disseminated by The Asian Banker

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