Vietnam’s banking sector looks stable for 2017 despite gloomy Southeast Asia outlook: Fitch

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A woman rides a bicycle past the building of the State Bank of Vietnam in Hanoi. Photo by Reuters/Kham.

Vietnam’s banking sector is likely to have a bright and stable 2017 while most Southeast Asian economies will face lower demand for loans and further pressure on asset quality, according to Fitch Ratings.

A statement released by the ratings agency described the outlook for the banking sector in Indonesia, Malaysia, Singapore and Thailand as “negative”, forecasting brighter prospects only in the Philippines and Vietnam.

Banks in the two countries enjoy a much more supportive economic environment that will lead to robust loan demand and steady asset quality next year, it said.

But the agency also warned of systemic challenges that need long-term intervention in Vietnam’s banking sector – thin capital buffers, a large amount of non-performing loans and low profitability.

“The ratings of Vietnamese banks are among the lowest in the region as a result of these issues,” the statement said.

Across the region, it said weak global trade, low commodity prices and the slowdown in China’s economy have contributed to weakening GDP growth across the region's biggest economies over the last few years.

Loan demand is likely to remain soft in 2017 due to rising Chinese corporate debt and the possibility of a rise in U.S. protectionism, renewed dollar strength and higher U.S. interest rates, according to Fitch.

At the Asean Business Forum in Hanoi last week, Vietnamese Prime Minister Nguyen Xuan Phuc also warned of returning protectionism after U.S. President-elect Donald Trump announced his intention to impose trade barriers and scrap the Trans-Pacific Partnership - a U.S.-led 12-nation trade agreement that covers about 40 percent of the global economy.

In these difficult times, the ten-member ASEAN bloc should deepen economic ties and take initiatives to boost trade, investment and services, he said.

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“Each ASEAN country needs to make reforms, improve competitiveness and get onto the global supply chain for higher added value,” he said.