Vietnam headed for swift credit growth in next 12-18 months

Loans may expand between 15% and even up to 30%, said S&P’s Amit Pandey.

Vietnam is expected to witness swift credit growth through 2023, at about 15% over the next 12 to 18 months, according to the global banking outlook report released by S&P Global Ratings.

Although most state-owned banks are capital constrained, several mid-tier private sector banks are expected to expand loans by 15% and even up to 30%, said Amit Pandey, primary credit analyst for S&P Global Ratings.

However, this is also heightening the risk of rising indebtedness in the economy along with thin capital buffers of some banks, he added.

“Vietnam has experienced brisk credit growth over the past few years and there are signs of overheating in real estate and corporate bond markets.  As such, tightening domestic liquidity--a spillover from global macro conditions--pose risks,” Pandey noted.

Net interest of Vietnamese banks are also likely to get smaller as funding costs increase from historically low levels. 

“We expect a range-bound increase in credit costs for Vietnam banks due to low stock of loans under COVID relief and regulatory forbearance wherein banks get a three-year window for provisioning for such loans,” Pandey said.

Overall, the country’s economy is forecasted to expand 6% up to 7% in the next three years thanks to a recovery in its manufacturing sector.

“The country's export-led manufacturing sector (especially electronics) and strong structural domestic demand will keep the trend growth rate above the average of its peers,” the report said.