Interbank interest rates changed dramatically throughout the first half of the year, putting certain constraints on the Vietnam banking system.

Interbank rates soared to as high as 5.1% in April and May, up from less than 1% in January 2024. According to VIS Rating, this circumstance poses a liquidity risk to small and medium-sized banks. These banks confront issues because to their small deposit mobilization size, reliance on interbank funding, and lack of high-liquidity assets.

Data from 27 listed banks show that the loan-to-deposit ratio (LDR) for the overall banking industry grew in the first half of 2024. Meanwhile, small banks saw slower deposit growth and had to compensate by boosting short-term market funding.

Customer deposits throughout the whole banking industry were roughly VND 12.2 quadrillion, a 4% rise from the end of last year. The Big 4 banks maintained their dominance with over VND 6.48 quadrillion in deposits, a 2.4% rise from the end of 2023, representing for more than half of the system's total deposits.

Agribank led the Big 4 with approximately VND 1.83 quadrillion in deposits in the first half of the year, representing a 1.9% growth over the end of 2023. BIDV finished second with nearly VND 1.8 quadrillion, a 6% increase. Vietinbank ranked third, with more than VND 1.4 quadrillion, a 4% increase. Vietcombank finished fourth with VND 1.3 quadrillion, down 1.5% from the end of 2023.

Among private banks, MBBank topped with VND 618.617 trillion in deposits during the first half of the year, representing a 9% rise and ranking sixth overall in the industry. Sacombank followed with a 7.5% increase in deposits. ACB witnessed a 6% rise, while Techcombank, VPBank, and SHB saw deposit increases of 6%, 6.6%, and 2.6%, respectively.

Several banks classified as "systemically significant" or "top-tier" based on network size, total assets, or growth rate reported positive deposit growth. These include HDBank (up 4.3%), LPBank (up 21.4%), VIB (up 4.7%), Eximbank (up 4.3%), MSB (up 14.7%), OCB (up 4.5%), and Nam A Bank (up 5.3%).

Experts generally assess that large banks’ scale advantage helps them attract deposits more effectively than small banks in the context of rising interest rates. In other words, this advantage allows the Big 4 to remain relatively insulated from rate hikes, maintaining the lowest deposit rates in the system. Additionally, the Big 4 benefit significantly from State Treasury deposits, which are estimated to amount to nearly VND 292 trillion.

Quan Trong Thanh, Head of Research and Analysis at Maybank Investment Bank, emphasized that this is a key factor supporting the liquidity of the Big 4. He added that these banks would continue to leverage this advantage to maintain low-interest rates and implement policies aimed at supporting capital costs, boosting production recovery, and promoting growth. This will allow them to continue lending while maintaining a positive LDR.

Conversely, banks with weaker deposit growth include SaigonBank, PGBank, KienlongBank, NCB, ABBank, and VietA Bank.

In parallel, VIS Rating noted that the CASA ratio (current account savings account) of the sector remained stable at 20% of total outstanding loans. The leading banks in this area include MBBank, Techcombank, Vietcombank, MSB, Vietinbank, ACB, TPBank, MSB, Sacombank, BIDV, and VPBank, all of which have made substantial investments in technology.

With the sector's LDR increasing to 106% in the first half of 2024 from 104% in the first quarter, VIS Rating's analysis suggests that some small banks are struggling to grow their deposits due to intensifying competition for funding. As a result, they have increasingly relied on short-term interbank borrowing to support loan growth.

“We note that the liquid assets of small banks declined by 6% in the first half of 2024, in contrast to a 5% increase across the sector. Therefore, we believe these smaller banks are more vulnerable to liquidity risks,” VIS Rating's report highlighted.

A more positive signal for small banks looking to improve deposit growth and LDR comes from easing interest rate pressures. With expectations that the Fed may soon lower the FFR, stabilizing exchange rates and easing monetary policies from various central banks, Vietnam's interbank rates have also declined since August 5 (As of August 16, the overnight interest rate averaged 4.58%, up slightly from the previous week. Source: SBV). On the market, several banks, including AnBinhBank, OCB, Bac A Bank, and SeABank, have already cut their deposit rates. Cheaper interbank funding will help improve liquidity and reduce asset risks for small banks, enabling them to continue expanding their loan portfolios and meet business targets by year-end.

Regarding asset quality and bad debt, VIS Rating's analysis for the first half of 2024 indicates that the sector's problem loan ratio remained stable at 2.2% compared to the previous quarter. However, small banks experienced the most significant asset quality deterioration.

NCB, Bac A Bank, SaigonBank, and VietABank reported higher new non-performing loan (NPL) formations compared to other banks, primarily in the retail and SME segments.

Among state-owned banks (SOB), VietinBank and BIDV saw increased problem loan ratios due to issues in the construction and real estate sectors. Some large banks reduced their NPLs by using provisions to handle VAMC bonds (e.g., VPBank) or by reducing NPLs from major clients (e.g., MBBank). TPBank maintained a low level of new NPLs through tightened lending conditions for new consumer loans.

“We expect the low-interest rate environment and policy measures aimed at supporting various business sectors will improve debt repayment capacity and help reduce overdue debts,” VIS Rating experts said.

Financial analysts also anticipate that asset quality and profitability across the banking sector will remain stable in the second half of 2024 (2H2024), supported by improved business conditions.

Furthermore, major private banks are likely to profit the most from increased lending growth and better net interest margins (NIM). Techcombank, HDBank, VPBank, and LPBank reported loan growth that above the industry average of 7.7% in the first half of 2024, owing to corporate lending in real estate, commerce, and manufacturing. These banks' NIMs grew by 30-60 basis points, resulting in greater returns on average assets (ROAA), which averaged 2.2%. Fee income grew at various banks, including Techcombank, LPBank, and TPBank.

On the other hand, banks focused on retail lending, such as VIB and OCB, saw reduced profits due to weaker mortgage loan growth, lower investment income, and higher provisioning costs. VIS Rating expects that sector ROAA will continue to benefit from strong corporate loan demand, improved mortgage lending as new housing supply recovers, and stable NIMs supported by low interest rates.