Vietnamese banking sector a rising ASEAN dragon

Samir Dixit, global head Acorn Management Consulting

This drive for growth is complemented by improving profitability metrics, with analysts forecasting a healthy return on assets of around 1.55-1.60 per cent, buoyed by an expanding net interest margin. However, this aggressive expansion is not without its challenges, primarily the persistent concerns over asset quality linked to real estate exposure and liquidity pressures affecting smaller institutions.

When compared to its ASEAN peers, Vietnam presents a compelling story of a high-growth contender rapidly closing the gap. While its total asset size is smaller than the banking giants in Singapore, Indonesia, and Malaysia, its growth trajectory is significantly steeper.

The recent introduction of a regulatory sandbox for fintech signals a proactive approach, while strategically raising foreign ownership limits in certain banks will attract overseas capital and expertise to fortify the sector.

In the next five years, the Vietnamese banking sector is expected to enter a phase of consolidation and deeper integration. The focus will likely pivot from sheer credit volume to enhancing the quality of loan portfolios and strengthening risk management frameworks to align more closely with international standards.

By 2030, Vietnam’s banks will possess larger balance sheets and a greater regional presence, though they will face intense competition from the tech-first financial institutions of Singapore and Indonesia.

The future ASEAN financial landscape will be multipolar; while Singapore will likely retain its edge in wealth management, the sheer domestic market scale of Indonesia and Vietnam will make their banks major forces. Success will ultimately depend on building a resilient and innovative financial ecosystem.

While the primary challenge remains that of management of non-performing loans (NPLs), which are an inherent risk in any rapidly expanding credit environment, to secure a promising future, Vietnam must address its key vulnerabilities by drawing lessons from international experience, particularly from its ASEAN neighbours.

Vietnam could learn from Malaysia’s response to the 1997 Asian financial crisis, where the government established a dedicated national asset management company, Danaharta, to acquire and rehabilitate bad loans, thereby cleaning up bank balance sheets and restoring confidence.

A similar, well-capitalised and transparent entity in Vietnam could accelerate the resolution of legacy NPLs and assets tied to the troubled real estate sector, allowing banks to focus on productive new lending.

In contrast, Singapore’s model, overseen by the Monetary Authority of Singapore, emphasises prevention through stringent regulatory oversight, rigorous stress testing, and early warning systems that identify and address risks before they become systemic.

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