Vietnamese banks in a bright spot in the post-pandemic world

Vietnamese banks are under the spotlight in the post-pandemic world

The Asian Development Bank (ADB) has forecast Vietnam to be one of the fastest-growing economies in Southeast Asia despite the impact of COVID-19. In its Asian Development Outlook report 2020, it reiterated the country’s economy will bounce back to 6.8 per cent in 2021.

Given the rapid digitalisation trends observed in recent years and the government's policies towards financial inclusivity – combined with the State Bank of Vietnam's policies of strengthening banks’ balance sheets – the current situation provides a unique mix where Vietnamese banks can keep growing rapidly and increase profitability by introducing innovative financial products to reach out to traditionally cash-based sectors of the economy.

The pandemic has accelerated the cashless transformation in Vietnam, and banks have slashed online transaction fees to encourage this payment method, thereby boosting e-commerce and delivery services.

To support post-COVID-19 economic recovery, the government has launched a $10.8 billion credit support package, lowered interest rates, and delayed the payment of taxes and land use fees for several business lines. It has further issued financial assistance for employers and employees affected by the pandemic.

Therefore, these fundamentals provide the banks with a strong position to be able to grow their assets without the need to lower underwriting standards and increase loan portfolio risks.

That could also mean that Vietnamese banks, in theory, are well placed to deliver above-market returns on investor capital.

As a result, without putting in a lot of money, investors are potentially able to see their balance sheets grow for a sustainable period of time.

Moreover, the fact that the Vietnamese economy features a low-cost labour force and high productivity levels may provide a future-proof basis for investors' returns. Also, the growing productivity in local export-oriented sectors is likely to attract foreign direct investments and could ensure current account surplus and domestic liquidity in the country.

Therefore, Vietnam is best placed to be the benefactor of the unravelling US-China trade tensions, which are already resulting in a shift in the global supply chains.

While the global pandemic is far from over, the Vietnamese government has made sure that the country is well prepared in case of a third wave.

Vietnam currently produces seven million fabric masks and 5.7 million surgical masks a day, while Vingroup has stated that it can produce 55,000 ventilators a month. Should there be another wave of infections, the country has also readied new hospitals equipped with the required medical equipment.

The World Bank has further stated that Vietnam’s economy remains resilient and in its report titled East Asia and Pacific in the Time of COVID-19 reiterated that the country benefits from the numerous free trade agreements with its favourable labour market conditions.

With growing financial capabilities and a high GDP growth rate, the Vietnamese banking sector may be a bright spot in the post-COVID-19 investment landscape.