Growing Presence of Vietnamese Banking Industry in the ASEAN Region
Vietnam's State Bank of Vietnam has set an ambitious target of achieving a cashless economy by 2030, and the banking sector is making significant strides to meet this goal. By 2030, Vietnam's banks are expected to have larger balance sheets and a greater regional presence, closing the gap with ASEAN peers.
The banking sector is rapidly growing, and one of the key challenges it faces is managing non-performing loans (NPLs). To address this issue, Vietnam has been actively implementing a series of regulatory reforms and policy measures aimed at improving asset quality, increasing capital adequacy, and facilitating more effective debt resolution.
One of the key approaches in Vietnam includes a regulatory overhaul and legal mechanisms. Amendments to the Credit Institutions Law and the revival of mechanisms like Resolution 42 have created legal frameworks for unlocking troubled assets and streamlining bad debt resolution, helping banks recover value from distressed loans.
Another approach is increasing foreign ownership in distressed banks. The government increased foreign ownership caps to 49% for banks acquiring distressed lenders, encouraging foreign capital inflows that can bring better governance, risk management, and technology to recapitalize weaker banks like OceanBank and Construction Bank.
The State Bank of Vietnam now has authority to approve zero-interest rescue loans for banks facing liquidity crises without requiring prior government approval, reducing risks of systemic contagion and lowering provisioning costs. There is an optimistic outlook for the NPL ratio to decrease as large banks manage loan portfolios better and the government implements policies to address legal issues related to collateral and bank rights, reducing legal risks in debt recovery.
Capital market and structural reforms are also underway, with the sector aligning with international standards like Basel III, removing credit quotas, and encouraging stronger banks with better capital buffers to lead credit growth.
From Malaysia and Singapore, Vietnam can learn several valuable lessons in NPL management. For instance, the adoption of asset management companies (AMCs) like Danaharta and the strong regulatory oversight from the Monetary Authority of Singapore (MAS) can improve outcomes. Vietnam could also optimize its increased foreign ownership caps by strengthening regulatory approvals and governance frameworks.
As Vietnam mandates biometric authentication for high-value online transactions, a fragmented approach by individual banks can create inefficiencies. To overcome this, Vietnamese banks should deepen their collaboration with the nation's fintech ecosystem, forming strategic partnerships to leverage agility and technological expertise.
The Vietnamese banking sector is expected to consolidate and integrate more deeply in the next five years, with the net interest margin expanding for the company. By the end of 2025, the sector is expected to reach a net interest income of $17.61 billion, driven by growing consumer demand and the rapid expansion of digital banking.
However, Vietnam faces intense competition from tech-first financial institutions in Singapore and Indonesia. To stay competitive, Vietnamese banks should integrate popular e-wallets into their core platforms and use fintech-developed AI for more sophisticated credit scoring, especially for the underserved micro-lending market.
In summary, Vietnam's banking sector is making significant strides through regulatory reforms, legal frameworks, foreign capital facilitation, and liquidity support to tackle NPLs. Learning from Malaysia and Singapore, Vietnam could enhance its approach by developing dedicated asset management companies, reinforcing governance in foreign partnerships, applying conservative real estate lending practices, and deepening macroprudential regulatory tools to ensure long-term banking sector resilience and stability.
The increased foreign ownership in distressed banks, a strategy employed by Vietnam, can potentially introduce advanced technology to streamline operations and improve risk management within the banking sector. Additionally, the banking sector's collaboration with the nation's fintech ecosystem is crucial for leveraging technological expertise and facilitating seamless high-value online transactions, thereby increasing efficiency.
