Coverage: weekly note · Information to 14 September 2024
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TGB Weekly Research Note · 14 September 2024
Lending recovered after a negative start to 2024, but system asset quality, property-linked bad debt and maturing real estate bonds still weigh on Vietnam's banks.
The desk view
Credit to Vietnam's economy rose 6% between the end of 2023 and the end of June 2024, after contracting in the first two months of the year. On the World Bank's measure, growth reached 13.5% year on year by the close of June 2024, still below the State Bank of Vietnam's (SBV) 15% target for the year. Asset quality has not followed lending upwards. System-wide NPLs rose to 4.6% of loans in 2023 and problem loans could reach 7.9% once restructured loans and VAMC debts are included, while NPLs to developers and home buyers rose to an estimated 2.73% of all loans. The World Bank warned that the expiry of forbearance measures, set for December 2024, may push NPLs higher. Our reading is that the half-year pick-up in credit has not yet changed the risk picture, and that the end of forbearance is the more important test.
A late start, then a half-year catch-up
Credit growth was negative in the first two months of 2024 and turned positive from March. By the end of June, credit to the economy was 6% above its end-2023 level, according to the SBV. The World Bank put growth at 13.5% year on year at the close of June 2024, driven by manufacturing, real estate, and trade, transport and telecommunications. It said growth remained below the SBV's 15% target for the year, reflecting continued weak domestic investment demand. The SBV had guided for system credit growth of about 15% in 2024, after growth of 13.71% in 2023.
Household demand was soft: total consumer loans grew 6.8% year on year in Q1 2024, against an average of 16.1% over the previous five years. BIDV's credit growth reached 5.83% by 28 June, according to the SBV, close to the system figure. The SBV kept its policy rates unchanged, while mortgage rates on new loans had fallen after its four rate cuts in 2023.
By 26 August 2024 credit was 6.63% above its end-2023 level, well below the SBV's guidance, and growth was uneven, with some lenders contracting, according to the SBV. From 28 August, lenders whose growth had reached 80% of their 2024 quota could raise their credit ceilings, based on their rating scores.
Asset quality has not turned with lending
System-wide NPLs rose from 1.9% of total loans in 2022 to 4.6% in 2023, driven largely by recognition of bad debts at Saigon Joint Stock Commercial Bank (SCB), the World Bank said. Including restructured loans and VAMC debts, total problem loans could be as high as 7.9%. Among 27 listed commercial banks holding 83% of outstanding credit, the NPL ratio rose from 1.9% in Q4 2023 to 2.2% in Q1 2024, an increase of 30bp.
Real estate remains a particular source of strain. According to the SBV, NPLs to developers and home buyers rose to an estimated 2.73% of all loans in 2023 from 1.7% in 2022. Bonds maturing in the second half of 2024 are estimated at VND139.8 trillion (US$5.6 billion), of which 42% are real estate bonds. The World Bank added that loan-loss provisions remain uneven and in some cases insufficient, and that higher provisioning would weigh on profitability already squeezed by slower net interest income and fees.
Vietnam: credit and asset-quality indicators
| Indicator | Period | Value |
|---|---|---|
| Credit growth vs end-2023 | End-June 2024 | 6% |
| Credit growth vs end-2023 | 26 August 2024 | 6.63% |
| Credit growth, year on year | End-June 2024 | 13.5% |
| SBV credit growth target | 2024 | 15% |
| System NPL ratio (2022) | 2023 | 4.6% (1.9%) |
| Problem loans incl. restructured and VAMC | 2023 | up to 7.9% |
| NPL ratio, 27 listed banks (Q4 2023) | Q1 2024 | 2.2% (1.9%) |
| NPLs to developers and home buyers (2022) | 2023 | 2.73% (1.7%) |
| Real estate share of bonds maturing | H2 2024 | 42% |
Source: State Bank of Vietnam, Điều hành chính sách tiền tệ góp phần ổn định kinh tế vĩ mô, 23 July 2024; Government of Viet Nam, Điều chỉnh chỉ tiêu tăng trưởng tín dụng cho các tổ chức tín dụng, 29 August 2024; World Bank, Taking Stock, August 2024: Reaching New Heights in Capital Markets, 26 August 2024.
Forbearance and property law changes
On 18 June 2024 the SBV issued Circular 06/2024/TT-NHNN, effective the same day, amending Circular 02/2023/TT-NHNN, under which lenders may restructure repayment terms while keeping loans in the same debt group. At BIDV alone, principal and interest of VND49,174 billion had been restructured for 1,609 customer cases under Circular 02 by 31 May 2024.
The authorities also moved on property. Implementation of the revised Real Estate Business Law, Housing Law and Land Law was brought forward to August 2024 from January 2025. Among the changes, the maximum early deposit on future housing projects falls from 70% to 50% of the purchase price, and project information must be disclosed before sales. The SBV also pointed to its VND120 trillion lending programme for social housing, workers' housing and apartment renovation.
For banks, the second half carries two tests: whether lending can accelerate without loosening standards, and whether property borrowers can meet bond maturities and loan repayments once forbearance ends.
What to watch
- December 2024: scheduled end of forbearance measures, which the World Bank said may further increase NPLs.
- Second half of 2024: VND139.8 trillion of bonds maturing, 42% of them real estate bonds.
Primary sources: State Bank of Vietnam, Điều hành chính sách tiền tệ góp phần ổn định kinh tế vĩ mô, 23 July 2024; World Bank, Taking Stock, August 2024: Reaching New Heights in Capital Markets, 26 August 2024; State Bank of Vietnam, Quyết tâm thúc đẩy tăng trưởng tín dụng ngay từ đầu năm, 22 February 2024; State Bank of Vietnam, Ban Lãnh đạo NHNN làm việc với cán bộ chủ chốt BIDV, 12 July 2024; Government of Viet Nam, Điều chỉnh chỉ tiêu tăng trưởng tín dụng cho các tổ chức tín dụng, 29 August 2024; State Bank of Vietnam, Thông tư số 06/2024/TT-NHNN sửa đổi, bổ sung Thông tư số 02/2023/TT-NHNN, 25 June 2024.