Banks shift focus to optimizing loan portfolios amid strong credit growth

According to leaders of the State Bank of Vietnam (SBV) – Region II, credit institutions should focus on supporting businesses by removing obstacles, organizing dialogues and business–banking linkages, and expanding banking services effectively during the remaining months of the year.

In the third quarter of 2025, system-wide credit rose 3.5% from the previous quarter. Cumulatively, in the first nine months of the year, credit had expanded 13.4% from the start of 2025 — the highest level in 15 years. Updated SBV figures show that by October 30, credit growth had reached 15%.

Loan composition data indicates that medium- and long-term lending has been growing faster than short-term lending since the second quarter of 2025. S&I Ratings noted that the construction sector maintained strong momentum for the third consecutive quarter, with outstanding loans rising sharply at several banks: VPBank by VND 15.3 trillion, HDBank by VND 12 trillion, KienlongBank by VND 13 trillion and LPBank by VND 8.4 trillion since the beginning of the year. According to Nguyen The Minh, Head of Research at Yuanta Vietnam, these results align with broader market dynamics, with public investment, infrastructure and construction serving as key anchors for credit growth.

Retail-focused banks such as VIB and BVB also accelerated real estate lending in the third quarter, posting quarter-on-quarter increases of 62 percent and 49 percent, respectively. Lending to securities companies was another standout area, recording strong and widespread growth, with total disbursements estimated at more than VND 44 trillion in the third quarter. This coincided with one of the most active quarters ever for Vietnam’s stock market, which repeatedly set new records and attracted robust investment flows, driving margin lending to historic highs by the end of September. Banks with integrated financial ecosystems and affiliated securities firms—including TCBS, SSI, VPBankS, VPS, HSC, as well as fast-growing brokers like VPBankS and VIX—were among those with the strongest increase in securities-related lending.

The system’s non-performing loan (NPL) ratio remained stable at around 2.0 percent in the third quarter, down three basis points from the previous quarter. However, in absolute terms, NPLs still increased 2.6 percent compared with the end of the second quarter, despite strong credit expansion. According to S&I Ratings, bad-debt write-offs continued to play an important role in stabilizing the NPL ratio, with total bad-debt resolution reaching VND 21.6 trillion, up 20 percent year-on-year. The formation rate of new bad debt fell sharply to 0.05 percent, from 0.29 percent in the previous quarter, while credit provisioning costs remained steady at 0.3 percent, easing short-term credit cost pressures.

Experts consider the decline in new NPL formation a highly positive signal given the fast expansion of outstanding credit. However, caution is warranted in the fourth quarter, as many regions were affected by storms and floods, and banks are implementing mandated support measures including interest rate cuts of up to two percentage points and loan restructuring.

Another encouraging signal at the end of the third quarter was the improvement in the loan-loss reserve (LLR) ratio, which rose to 84 percent from 80 percent in the previous quarter. S&I Ratings believes the NPL ratio may have bottomed in the short term and could edge up in subsequent quarters. Strong credit growth toward year-end will help lower the NPL ratio relative to total outstanding loans, but the 14 percent quarter-on-quarter increase in special-mention loans (Group 2) remains an early warning sign of future NPL formation.

Financial statements from major banks also show a slight system-wide decline in net interest margin (NIM), which fell to 3.15 percent in the third quarter, down three basis points from the previous quarter. Loan yields improved modestly for the second consecutive quarter thanks to the expansion of medium- and long-term lending, and lending rates have shown signs of stabilizing since early in the third quarter. However, rising funding costs—up 13 basis points—continue to place downward pressure on NIM. Particularly notable is the sharp increase in interbank borrowing costs, which rose 41 basis points, with outstanding interbank borrowing growing more than 20 percent by the end of the third quarter.

Whether NIM can stabilize or improve in the fourth quarter remains uncertain. Several banks have already begun adjusting deposit rates upward, even for longer tenors, and have rolled out aggressive promotional campaigns to attract savings, increasing their cost of capital.

According to S&I Ratings, non-interest income continued to be a key profit driver in the third quarter, rising 29 percent year-on-year, more than twice the growth rate of net interest income. Recoveries from previously written-off debt remained the largest contributor, reaching VND 12.5 trillion, up 20 percent year-on-year. Fee income rose 19 percent year-on-year, driven by a strong rebound in bancassurance, which surged 56 percent — the sharpest recovery in three quarters — while brokerage fees also reached record highs. This indicates that cross-selling insurance is returning as a lucrative business line, a trend reinforced by banks establishing their own insurance subsidiaries.

Income from securities trading and investment also increased substantially thanks to the rallying stock market. The VN-Index reached an all-time high in the third quarter, significantly boosting brokerage, investment banking and proprietary trading activities at bank-owned securities firms. As a result, banks’ income from securities trading and investment surged thirteen-fold year-on-year, with particularly strong gains at VPBank, up 828 percent, and Techcombank, up 134 percent. Foreign exchange trading also remained robust, rising 18 percent year-on-year. The wide VND–USD interest rate differential supported FX trading volumes, derivative transactions and overall FX liquidity. Some FX experts noted that the differential had encouraged USD hoarding earlier in the year, tightening FX supply. However, with SBV’s flexible policy measures, expectations of lower USD interest rates and year-end inflows from exports and remittances, exchange rate pressures are expected to ease.

Given the pace of credit expansion over the first nine months of 2025, experts believe system-wide credit growth could reach 19 to 20 percent for the full year — the highest since 2011 and consistent with SBV projections at the third-quarter press briefing. A resilient economy and supportive policy environment continue to underpin credit demand.

However, rising funding pressures and gradually increasing interest rates present challenges as banks work to balance credit expansion with funding costs. Additionally, many banks have already approached the credit ceilings assigned by the SBV, meaning that optimizing loan portfolios will likely become a central priority for the banking system in the final months of the year.