Banks face diverging fortunes in second half of 2026

In its market strategy report for the second half of 2026 released on June 10, SSI Research noted that liquidity pressures, shrinking net interest margins and early signs of deteriorating asset quality will be the key factors shaping the banking industry's outlook over the coming quarters.

According to the report, the defining feature of the current cycle is not whether banks can avoid macroeconomic headwinds, but rather each institution's ability to absorb and manage risks more effectively than its competitors.

On the funding side, SSI Research estimates that, as of mid-May, total deposits across the banking system exceeded $680 billion, up almost 3 per cent from the outset of the year. However, deposit growth continued to lag well behind credit expansion, leaving the system-wide loan-to-deposit ratio at an elevated level, reflecting persistently tight liquidity conditions.

The State Bank of Vietnam (SBV) has reported that, as of April 28, outstanding credit had increased by more than 4.4 per cent compared with the end of 2025, while deposit mobilisation grew at a much slower pace.

As a result, the VND deposits remained approximately $80 billion below total outstanding credit.

This imbalance also signifies why deposit interest rates are unlikely to decline significantly, with long-term deposit rates expected to remain in the range of 7–8 per cent per year.

Meanwhile, banks have limited room to raise lending rates immediately, as lending rates typically adjust with a lag.

Banks’ financial statements show that the average net interest margin (NIM) of 28 banks fell to just under 2.87 per cent in the first quarter of 2026 from 2.93 per cent in the fourth quarter of 2025, with 20 banks reporting on-quarter declines.

Nguyen Quang Huy, CEO of the Faculty of Finance and Banking at Nguyen Trai University, said the banking sector faced dual pressures in the first quarter as declining NIM coincided with weaker non-interest income streams.

"This indicates that the sector's profit growth potential has narrowed considerably compared with previous periods. NIM is expected to remain under pressure in the short term, particularly in the second quarter," Huy said.

"Funding costs usually reflect previous increases in deposit rates with a time lag, while asset yields cannot adjust at the same pace. Medium- and long-term loans, preferential lending programmes, and continued efforts to support borrowers make it difficult for banks to raise lending rates significantly," he added.

Market analysts believe that NIM may stabilise in the following quarters of 2026, although a strong recovery remains unlikely.

In practice, NIM recovery would require several conditions, including deposit rates ceasing to rise, current account savings account ratios remaining stable, existing loans being repriced and credit growth focusing on segments that offer reasonable yields while maintaining prudent risk control.

Simply raising lending rates to improve NIM could expose banks to higher non-performing loan risks, particularly among small and medium-sized enterprises, real estate borrowers, and retail customers.

Against this backdrop, analysts expect liquidity conditions to gradually improve, supported by four key drivers: stronger cash inflows returning to the banking system, higher export earnings, continued growth in foreign direct investment inflows, and accelerated public investment disbursement.

Regarding lending activities, the banking system's credit growth target for 2026 remains at around 15 per cent. As of the end of May, outstanding credit had risen by just over 5.7 per cent from the beginning of the year, equivalent to an annual increase of 19 per cent.

SSI Research forecasts that credit growth in the second half of the year will become more cautious as banks are required to remain within their assigned credit quotas. Credit allocation is shifting significantly towards construction and infrastructure projects.

Meanwhile,, the housing mortgage segment is expected to stage a more meaningful recovery only in 2027, when interest rates are projected to decline substantially. Pressure on net interest margins therefore remains the most immediate challenge facing the sector.

SSI Research expects deposit rates to remain broadly unchanged before edging lower towards the end of 2026.

As funding costs continue to rise faster than the recovery in interest-earning asset yields, privately owned joint-stock commercial banks are projected to record an average NIM decline of around 10 basis points.

By contrast, state-controlled commercial banks, benefiting from more stable funding structures and lower funding costs, are expected to improve NIM by approximately 8 basis points.

Under this scenario, fee income from trade finance, guarantees and standby letters of credit will become an increasingly important profit driver as interest income remains constrained throughout 2026.

Banks enter post-digitalisation race for customer loyalty As digital banking becomes the norm, Vietnamese lenders are entering a new race where customer experience, data intelligence and trust, not transaction speed, will determine who wins long-term loyalty.

Banks build bigger buffers as bad debt pressure returns Banks are sharply increasing loan-loss provisions as rising bad debts, weaker cash flows and mounting property market risks force lenders to prioritise financial resilience over short-term profit.

Banks face growing constraints on loan rate reductions Although banks have trimmed lending rates following the State Bank of Vietnam’s call for lower borrowing costs, rising funding expenses and stronger competition for deposits are expected to limit further reductions.