Moody's raises outlook for Vietnam's banking system

By Ha Phuong   November 1, 2017 | 05:26 pm GMT+7

The upgrade was supported by the country’s robust economic growth and diversified economy.

Credit ratings agency Moody’s on Tuesday upgraded its outlook for Vietnam’s banking system from stable to positive for the next 12-18 months, reflecting the country’s strong economic prospects and positive outlook for most rated banks.

"The change in outlook reflects Vietnam’s robust economic growth, supported by domestic demand, healthy exports and public sector investment," said Eugene Tarzimanov, Moody’s vice president and senior credit officer.

Moody’s projects Vietnam’s actual GDP growth will accelerate slightly to 6.1 percent this year and 6 percent in 2018.

“Strong economic growth translates into positive conditions for banks’ asset quality, but rapid credit growth, aided by accommodative monetary policy, can raise asset risks again," Tarzimanov warned. 

Over the next 12-18 months, 15 rated Vietnamese banks’ income will grow steadily on the back of strong loan growth, Moody’s noted.

However, the improvement will be offset by high credit costs. Net interest margins will also likely decline further due to competition and government pressure to lower bank lending rates, it added.

Moody's also urged Vietnam to continue its restructuring of the banking system and state owned enterprises.