In the wake of Typhoon Yagi, which has devastated northern Vietnam, the State Bank of Vietnam (SBV) has directed commercial banks to implement debt relief measures to aid affected borrowers. These efforts, including lowering lending rates by 0.5% to 2%, aim to support recovery in devastated regions but could have significant consequences for the banking sector's profitability.
Banks are already contending with declining asset yields and reduced demand for credit, exacerbated by slowing domestic consumption. As they reduce interest rates to accommodate debt relief, margins are expected to shrink further, particularly for state-owned commercial banks (SOCBs) like Vietcombank, which holds a large volume of loans eligible for relief.
According to S&P Global Ratings, this could be a critical moment for Vietnam’s banking sector. While the debt relief measures may help stabilize non-performing loan (NPL) ratios in the short term, the true test will come in 2025, when these policies end, potentially leading to rising NPLs and higher provisioning costs. The potential rise in bad loans could further strain the sector’s profitability, especially as banks strive to meet credit growth targets and manage the fallout from the real estate sector’s slow recovery.
As businesses and banks navigate this challenging landscape, the role of political risk and economic advisory will be key to mitigating long-term impacts. ESSEA Foresight offers in-depth politico-economic insights and risk advisory services to help businesses prepare for the future. Leverage our expertise in the region to stay ahead of evolving challenges.
For more information on our political risk advisory services, reach out to us today.
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