The prognosis for credit growth remains positive

As of May 20, 2022, loan growth in the Vietnamese banking sector was 7.66 percent year on year, nearly double that of the same period the previous year. Photo: Transactions at Nam A Bank.

A strong growth in credit in 1Q22

As of May 20, 2022, loan growth in the Vietnamese banking sector was 7.66 percent year on year, nearly double that of the same period the previous year, indicating significant credit demand for the resumption of business activity following the epidemic. At the end of 1Q22, the banking system's credit increased by 6% ytd and 16.9% yoy to VND11,149 trillion (Q21: 2.95 percent ytd), owing to significant credit expansion in industry and trade.

Three state-owned commercial banks (SOCBs), namely BID, VCB, and CTG, which accounted for 33.5 percent of the country's lending market share, delivered 6.7 percent year-on-year credit growth, which was greater than the system's. The total loan book of 15 listed banks increased 6.7 percent year on year at the end of 1Q22, accounting for 62 percent of system credit.

At the end of 1Q22, M2 increased by 3.45 percent year on year and 12.3 percent year on year, which was lower than the system credit growth rate of 6% year on year. Year on year, individual deposit growth has slowed to 3.3 percent. Despite low deposit interest rates, people are still looking for higher-yielding investment vehicles (corporate bonds, stock market, real estate market).

Customers of three SOCBs, which account for 30% of M2, increased deposits by 4.2 percent year on year, outpacing the system.Total deposits of 15 listed banks, which accounted for 56 percent of M2, increased 4.2 percent year on year at the end of 1Q22 (much higher than the 1.6 percent ytd at the end of 1Q21).According to VNDirect, the credit-deposit growth gap will expand, putting pressure on banks with limit ed liquidity.

"Credit growth in the banking system will continue to accelerate, reaching at least 14% in FY22F, driven by (i) a strong rebound in manufacturing and trading activities; (ii) low lending rates to trigger borrowing demand for house buyers; and (iii) higher public investment disbursement rate," VNDirect said, adding that because Vietnam has been normalized since Oct. 21, synergizing with current Government supporting packages and low lending rates would boost budding entrepreneurs.

NIM was mixed

Due to interest payment reductions/exemptions and lending interest rate reductions, banks continued to declare asset yield contractions to sustain COVID-19 affected consumers. In 1Q22, SOCBs' average yield fell 35 basis points year over year, while listed private banks' yield fell 46 basis points year over year. In 1Q22, average listed SOCBs' cost of funds (COF) declined by 22 basis points yoy to 2.97 percent, while average listed private banks' COF fell by 50 basis points to 3.4 percent. The SBV's easing monetary policy assisted banks in lowering their funding costs.

The NIM of listed SOCBs fell 14 basis points to 2.96 percent in 1Q22. The average NIM of publicly traded private banks increased by 1 basis point year over year to 4.48 percent, but each listed private bank's NIM ranged between compression and expansion. Banks with lower funding costs due to CASA improvements and/or low LDR continued to maintain or enhance their NIMs – MSB 34bps, MBB 27bps, HDB 19bps, TCB 6bps.