Credit risks loom as banks battle rate-cut pressures

Credit risks loom as banks battle rate-cut pressures

The State Bank of Vietnam (SBV) has ordered all credit institutions to adopt measures to stabilise and reduce deposit rates, thereby maintaining monetary market stability and building capacity for lower lending rates.

The move aims to support economic recovery and provide cheaper capital for growth.

Achieving this target, however, is proving challenging for the banking sector amid inflationary pressures and intensifying competition for term deposits, which has made reducing lending rates difficult.

In an interview with VIR, a senior executive from LPBank who wished to remain anonymous, said the solution lies in growing current account savings account (CASA) balances to secure a low-cost funding base.

“The Sinh Loi Loc Phat 2.0 offers competitive yields of 4.5-5 per cent per year when customers activate its features. This strategy mirrors VIB’s super profit account and Techcombank’s Auto-earning 2.0, which have already attracted nearly four million customers and CASA balances equivalent to 12 per cent of the bank’s total deposits,” he said.

Financial experts note these products are effective in boosting CASA balances, as customers keep more money in their current accounts, providing banks with low-cost funding to optimise lending and investment margins.

Phan Thanh Tinh, director of a packaging manufacturer in Dong Nai province, said his company’s production has stabilised and become more optimistic compared to earlier this year due to two main factors.

“First, tighter tax enforcement has curbed online sellers, helping legitimate businesses like ours increase sales,” said Tinh. “Previously, we struggled to compete because online sellers, operating untaxed and with unverified goods, could offer prices 50 or even 67 per cent lower than ours.”

“Second, interest rates have been a game-changer,” he continued. “In my 15 years doing business in Dong Nai, I’ve never found bank financing as accessible and affordable as now. With a strong credit history or a referral, borrowing from banks like Sacombank or Eximbank comes with rates as low as 5.5 per cent per annum, generous credit limits, and encouragement to borrow more.”

However, Tịnh noted a concerning trend as some business leaders are using cheap bank loans to speculate in the stock market and real estate.

“There are executives borrowing at low rates to allocate $1.6-2 million into stock trading. Breakfast conversations among business leaders are no longer about operations but about the market,” he added.

Financial expert Le Hoai An warned that treating credit growth quotas as strategic targets has shifted banks’ focus from strict credit appraisal towards rapid disbursement, especially in the year-end period.

“To meet quotas, some banks may loosen standards on borderline loans, leading to portfolio risks and higher provisioning pressure later,” he added.

Tran Thi Khanh Hien, head of research at MB Securities, forecast that deposit growth will accelerate in the second half of the year, with the industry expected to reach around 16 per cent in 2025. Credit growth, supported by deposits, is projected at 17-18 per cent by year-end.

“In last months of 2025, retail lending will play a greater role in driving credit expansion. Banks will likely maintain provisioning levels similar to the previous year to manage non-performing loan (NPL) ratios,” said Hien.

Despite net interest margin (NIM) pressure, she highlighted characteristics of banks likely to achieve stronger credit growth in H2.

“First, a lending portfolio concentrated in public investment and small- and medium-sized enterprises, which benefit from supportive policies. Second, stable NIM and asset quality relative to sector averages in 2024 and Q1 2025, allowing further rate cuts to remain competitive. Third, robust deposit growth in Q2, improving lending capacity while maintaining liquidity ratios,” added Hien.

Hien also cautioned that while special-mention loan ratios (Group 2 loans) have improved, loan-loss reserve (LLR) coverage has fluctuated as provisioning slowed.

“This raises concerns that weaker earnings compared to 2024 could significantly limit banks’ provisioning capacity in coming years,” she said.

“As a result, asset quality may not improve meaningfully by end-2025. Furthermore, the push towards retail lending could exert additional NPL pressure on listed banks in the medium term. With conservative provisioning policies and no material asset quality improvement forecast, LLR ratios of listed banks are expected to edge up only slightly by year-end.”

VIR