Bank sector flourishes in 2014

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The report stated that credit institutions’ were at a lower level of risk thanks to stable macro-economic conditions and a restructured credit organisation system.

In particular, bank liquidity was abundant and personal and corporate deposits were bolstered, although interest rates have gone down. The banking system’s loan-to-deposit ratio as of October 31 last year was reported at 83.43 per cent, a record low for many years.

Interest rates for deposits, lending and inter-bank lending are at a new low since 2006, which has reportedly helped boost credit growth. Thus, the interest rate curve is now more reasonable.

The value of assets across credit organisations has been improved and credit institutions have been proactively set aside loan loss reserves to handle bad debts.

The pressure of declining financial capacity was also reduced in mid-December when Moody’s raised its outlook on Vietnam’s banking system from negative to stable, noting improvements in macro-economic stability and operating environment for lenders.

Moody’s report showed that the operating environment for lenders began to stabilise after starting a long slide in 2012, as a consequence of rapid credit growth in previous years. Vietnam’s efforts to improve its financial system and emphasise economic stability over growth resulted in credit ratings upgrades.

The net interest margin (NIM) between the deposit and lending rates was also stabilised after a long fall during the 2011-2013 period.

According to the NFSC report, the NIM between the deposit and lending interest rates has gradually decreased over the last three years, from 3.5 per cent in 2011 to 3.2 per cent in 2012 and 2.8 per cent in 2013, and was then stable in 2014.

Additionally, credit growth has strengthened and was nearly evenly distributed for each month of 2014. The NFSC thus evaluated credit organisations’ activities to have improved thanks to the corporate sector’s improved liquidity and interest paying ability.

In particular, enterprises’ abilities to meet their short-term debts have improved from 0.9 last year to 1.5 this year. Likewise, non-financial enterprises’ ability to meet their debts has also improved significantly since 2013, at 5.4 in the first nine months of 2014, an increase of 1.1 compared to the same period in the previous year.

The ability to meet all debt payments has been demonstrated by nearly all sectors, with the exception of SMEs. In the first nine months the SME sector’s ability to meet debt requirements fell from 1.4 in 2013 to 0.6. The NFSC thus predicted that the banking sector in 2014 would keep its recovery momentum going alongside further restructuring of the financial market.