S&P Global Ratings said Vietnam's banking and financial sector is stable going into 2022 despite economic challenges related to the ongoing COVID-19 pandemic.
Banks in Vietnam, one of the important emerging manufacturing hubs in the global supply chain, are expected to have low requests for restructuring for loans, Ratings said. Amit Pandey, associate director of financial institutions ratings, said Vietnam has held up well because of its relatively sound GDP growth compared with other ASEAN peers.
Confidence in both borrowers and banks has also not diminished, with credit growth in the first half at about 5% to 6%, Pandey said. The number of restructuring loans is low, and the profitability of most of the banks is stable.
Further, there has been no impact on the capitalization of the banks, as their funding situation and loan-to-deposit ratios remain stable, and costs of funds are at historically low levels, Pandey said. The Vietnamese government is also looking at important structural reforms, which include improving the funding profile of the lenders.
"Overall, the system has shown certain weaknesses because of COVID, but those are relatively small," Pandey added.
Inflation is not yet a problem
Inflation is considered to be the main economic risk globally, along with the potential misreading of inflation dynamics by major central banks, Ratings said.
Vietnam, however, has been a star performer with its strong bounce during the pandemic compared with neighboring countries, said Vincent Conti, senior economist for Asia-Pacific at the rating agency.
Inflation is not yet viewed as a problem in Vietnam, as demand remains far below capacity. In addition, inflation forecasts for Vietnam for 2021 and 2022 have been lowered. However, there are risks around capital flows and exchange rates if sudden repricing happens as markets change their assessment of what the major central banks might do in the near future, Ratings said.
The revenue recovery of Vietnam corporates is also on its way, though this is likely to be impeded until the second half of 2022 due to the resurgence of COVID cases in the second and third quarters of 2021, said Xavier Jean, senior director of Southeast Asian corporate ratings.
Ratings said Vietnam's corporate sector withstood disruptions stemming from the COVID-19 virus somewhat better than other regional corporate sectors. Quicker control measures and relatively high vaccination in Vietnam had also prompted a faster recovery of corporates' revenue levels compared with countries such as Indonesia and the Philippines.
When compared with the rest of the world, a lagged deep drop in economic activity in Vietnam will result in a lagged post-COVID GDP recovery by the second half of 2022, the rating agency said. It expects GDP in the Asia-Pacific region to grow 6.7% in 2021, a forecast it has kept unchanged from the previous quarter.
This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings. Descriptions in this news article were not prepared by S&P Global Ratings.
