This is the second time that Moody's has upgraded the outlook of Vietnam’s banking system within the past six years.
"The change in outlook, which expresses our expectation of how bank creditworthiness will evolve in this system over the next 12-18 months, reflects Vietnam's robust economic growth, supported by domestic demand, healthy exports and public sector investment," stated Eugene Tarzimanov, Moody's Vice President and a Senior Credit Officer.
Moody's has also forecast that Vietnam's real GDP will grow by 6.1% in 2017 and 6.0% in 2018, higher than the 5.9% average for the previous five years.
However, Tarzimanov said that "Strong economic growth translates into positive conditions for the asset quality of banks, but rapid credit growth, aided by accommodative monetary policy, can raise asset risks again."
The report stated that the operating environment of banks will benefit from strong economic growth thanks to ongoing improvements in infrastructure, favourable demographics, and the government's continued efforts on reform in order to support foreign direct investment.
In addition, Moody's said that the banks' asset quality will remain largely stable during the period, with the non-performing loan ratio at 7.1% at the end of 2016 expected to reduce to 5.8% in 2018, driven by loan growth outpacing the formation of non-performing loans, as well as a modest recovery in the property sector.
Thanks to strong loan growth, profitability will remain stable with banks' pre-provision income growing steadily over the next 12-18 months, the report stated.
However, Moody's noted that improvement will be offset by high credit costs and net interest margins are also likely to decline further due to competition and government pressure to use lower bank lending rates.
In its report, Moody's rates 15 banks in Vietnam, which together accounted for 58% of banking system assets as of 30 June 2017. Three of the 15 banks, including BIDV, Vietcombank and VietinBank, are controlled by the government, while the other 12 are privately owned joint-stock commercial banking institutions.
The Moody's assessment is a positive signal for the Vietnam's economy, demonstrating the effectiveness of the government solutions to stabilise the macro-economy, control inflation, and boost economic growth aligned with the implementation of the project on the restructuring of the banking system and settlement of non-performing loans.
