Vietnam’s Banking: 2025 Review and 2026 Outlook

Vietnam Banks: resilient 2025 earnings, more selective growth in 2026, with valuation reset opening opportunities

In 2025, Vietnam’s listed banks delivered solid earnings growth with aggregate pre-tax profit (PBT) among the 15 largest lenders rose 15.3% y/y, sustaining a 17.6% sector ROE—well above the 9–11% range seen across most regional markets. The performance was supported by robust credit expansion, although net interest margins (NIM) came under pressure as banks lowered lending rates to stimulate borrowing demand and compete for high-quality customers, while funding costs gradually increased as deposit mobilization picked up to support loan growth. At the same time, asset quality continued to strengthen, supported by improving macro conditions and stronger bad-debt recoveries, while fee income became increasingly diversified as banks expanded into insurance, securities, and wealth management services. Ongoing digital transformation and enhanced staff productivity also contributed to steady gains in operating efficiency.

Looking into 2026, we forecast sector PBT to grow 15.9% y/y in 2026. Credit growth is expected to become more moderate and selective, as a higher interest rate environment and a more cautious regulatory stance temper part of the borrowing demand that was previously encouraged by accommodative lending conditions. However, lending yield repricing and reduced competition under tighter credit quotas could help support margin stabilization. Asset quality is expected to remain relatively stable, although higher interest rates may place pressure on borrower repayment capacity in certain segments. At the same time, continued expansion of financial ecosystems and digital capabilities should help further diversify fee income and enhance operational efficiency across the sector.

Meanwhile, the recent market correction has brought bank valuations to more attractive levels, with the sector’s structural drivers remain intact. Banks continue to play a central role in supporting Vietnam’s next phase of economic expansion and are well positioned to benefit from a potential FTSE Secondary Emerging Market upgrade in 2026. With resilient earnings growth, strengthening operating fundamentals, and deep market liquidity, high-quality Vietnamese banks continue to offer a compelling entry point for investors seeking exposure to the country’s long-term growth trajectory.

Corporate lending drives strong credit expansion, though moderation is expected going forward

System-wide lending increased 19.0% y/y in 2025, the fastest pace in five years, supported by strong macroeconomic momentum and a more accommodative credit policy stance. Vietnam’s economy expanded 8.0%, while retail sales and industrial production both rose 9.2% y/y, reflecting resilient domestic demand and continued strength in manufacturing. Public investment also accelerated sharply, with infrastructure spending surging 37.7% y/y, reinforcing financing demand across the economy. In parallel, accommodative monetary conditions and lower lending rates helped stimulate borrowing demand, further supporting the strong pace of credit expansion. Against this backdrop, corporate lending remained the primary driver of credit growth, supported by Vietnam’s ongoing investment cycle across infrastructure development, FDI-led manufacturing expansion, capital market activity, and the recovery of the real estate sector. Retail lending began to gain momentum later in the year, supported by stronger mortgage demand alongside increased housing supply, improving auto and consumer lending, and the emergence of unsecured lending enabled by advanced data analytics at leading private banks.

Looking ahead to 2026, higher interest rates are expected to temper borrowing demand in certain segments, particularly speculative activity in the property market as well as some investment, business expansion, and consumption that had previously been encouraged by a low-rate environment. Additionally, regulators are adopting a more cautious stance, with the SBV guiding system-wide credit growth at around 15% while introducing tighter oversight on real estate lending. At the same time, however, a more disciplined credit environment could reduce competition for loan growth, easing pressure on lending rates while reinforcing prudent underwriting and risk management.

System liquidity: conditions remain uneven but gradually improving

In the past few years, credit growth has outpaced money supply expansion, resulting in relatively tight system liquidity, rising the system’s loan-to-deposit ratios and increasing competition for funding. This dynamic was largely driven by a less supportive external condition. As the USD–VND interest rate differential turned unfavorable, FDI enterprises accelerated profit repatriation while domestic corporates repaid offshore borrowings. This creates outflow pressure, prompting the SBV frequently intervened to defend the domestic currency, effectively withdrawing VND liquidity. In parallel, strong tax collection temporarily shifted liquidity from the private sector into government accounts, while rising gold prices and FX volatility encouraged households to allocate more savings into alternative assets, slowing deposit growth.

However, several factors may begin to shift in the period ahead. As USD interest rates declined by 75 bps in 2025 while domestic rates have risen by around 250–300 bps over the past six months, the USD–VND interest rate differential has begun to turn more favorable. Continued normalization in global interest rates could reinforce this trend, helping slow the pace of profit repatriation while gradually reopening external funding channels. Structural drivers—including a potential stock market upgrade, continued FDI inflows, and stronger tourism activity—could also support capital inflows over time. At the same time, accelerating public investment disbursement gradually return liquidity to the private sector. As a result, despite a higher interest rate environment, funding conditions for the banking system could gradually improve, helping sustain credit growth.

Margins under pressure, though conditions are becoming more supportive

The sector’s NIM declined sharply in 2025, from 3.6% to 3.2%, reflecting the divergence between lending yields and funding costs. Lending rates softened earlier in the year as banks responded to regulatory guidance aimed at lowering borrowing costs to support economic activity, while competition for high-quality borrowers intensified. Meanwhile, funding costs began to rise from early H2/2025 as banks stepped up deposit mobilization to support the rapid pace of credit expansion. However, margin dynamics began to shift toward the end of the year and could become more supportive going forward. Lending rates started to reprice upward from Q4/2025 amid tightening system liquidity and a gradual normalization of loan pricing.

Looking ahead, more disciplined credit quotas would ease competition for lending, while the rising share of medium- and long-term loans should help support lending yields and gradually stabilize NIM.

Asset quality continues to strengthen

The sector’s NPL ratio remained stable at 1.8%, while the Group 2 loan ratio declined notably, indicating slower formation of potential problem loans and improving borrower repayment capacity. Strong economic activity and the recovery of the real estate sector also supported banks’ ability to recover previously written-off loans, with bad-debt recovery income surging 45.8% y/y. At the same time, supportive regulatory measures, that strengthen banks’ ability to seize and liquidate collateral, have improved the efficiency of bad-debt resolution and shortened recovery cycles, allowing sector credit costs to fall to record low levels.

Looking ahead, asset quality may face some pressure in a higher interest rate environment and under stricter oversight of real estate lending, particularly in more speculative segments of the property market. However, current interest rate levels remain broadly within the range observed during the pre-Covid period, when borrower repayment capacity across most sectors remained relatively stable. At the same time, a more conservative credit growth stance should allow banks to maintain disciplined underwriting and greater selectivity in new lending. As a result, any deterioration in asset quality is likely to remain within the sector’s risk tolerance rather than signaling systemic stress.

Financial ecosystems and wealth management: the next phase of fee income growth

Fee income growth remained strong among leading private banks, supported by scale and digital innovation. Bancassurance rebounded strongly as banks shifted toward more sustainable product offerings and improved sales practices following earlier regulatory tightening. At the same time, investment banking services maintained strong momentum, supported by rising capital market activity, bond underwriting, and corporate advisory demand. New digital revenue streams are also beginning to emerge, with Banking-as-a-Service (BaaS) and platform-based financial services gradually gaining traction among leading private banks. Together, these developments are helping banks diversify non-interest income sources and reduce reliance on traditional lending activities.

Looking ahead, Vietnam’s leading private banks are increasingly evolving toward integrated financial ecosystems. Institutions are building capabilities across consumer finance, securities brokerage, insurance, fund and asset management, digital banking platforms, and emerging services such as digital asset trading and gold platforms, aiming to provide end-to-end financial solutions across the customer lifecycle. With GDP per capita now exceeding USD 5,000, the country is entering a phase historically associated with accelerating wealth accumulation, rising insurance penetration, and greater participation in financial markets. As these ecosystems expand, fee income sources become more diversified, while customer funds—including deposits, investments, and insurance products—are increasingly retained within the same platform, strengthening customer retention and supporting low-cost deposit funding (CASA) over time.

Operating efficiency improves as banks accelerate digital transformation

Beyond cyclical earnings growth, Vietnam’s banking sector is also undergoing a structural transformation in operating efficiency. As a result, the sector’s cost-to-income ratio (CIR) continues to trend downward, and we expect it to decline further to around 30.3% in 2026. Over the past few years, most banks have either reduced staff or expanded their workforce only marginally, while accelerating investments in digital infrastructure and automation. Banks are increasingly investing in data analytics, advanced risk modeling, AI-enabled decision systems, and next-generation core banking platforms. These technologies allow banks to automate credit underwriting, improve fraud detection, optimize capital allocation, and enhance customer targeting. At the same time, many institutions are developing open banking platforms capabilities, allowing fintech companies and corporate partners to integrate financial services directly through APIs. This shift is gradually transforming the banking system toward a digital ecosystem model, improving scalability and lowering marginal operating costs.

Continued structural reforms strengthening the financial system

2025 saw several regulatory reforms aimed at strengthening Vietnam’s banking system and improving financial market infrastructure. Key policy changes have enhanced banks’ ability to resolve distressed assets by clarifying collateral seizure rights and strengthening legal protections around collateral recovery. These measures help accelerate the bad-debt resolution process and improve balance-sheet liquidity across the sector. At the same time, regulators introduced a roadmap toward Basel III implementation, representing another step toward aligning Vietnam’s banking framework with international standards and strengthening capital transparency and risk management. Additional reforms were also introduced to improve foreign investor access to Vietnam’s financial markets, simplifying account opening procedures and reducing administrative barriers for international portfolio investors. Together, these measures support deeper capital market integration and strengthen Vietnam’s case for a potential FTSE Secondary Emerging Market upgrade, which is expected to take effect in September 2026.

Valuations reset after recent correction, creating entry opportunities

Following a strong rally in 2025 that reflected improving sector fundamentals, profit-taking activity and rising geopolitical uncertainty have led to a notable correction in bank stocks over the past six months. As a result, valuations have reset to more attractive levels, trading at around 1.2x 2026F P/B and 7.4x 2026F P/E, offering a renewed margin of safety for long-term investors. At the same time, structural catalysts for the sector remain intact, with banks continuing to play a central role in supporting Vietnam’s next phase of economic expansion. As Vietnam moves closer to a potential FTSE Secondary Emerging Market upgrade in 2026, which could attract substantial foreign capital inflows, the banking sector is likely to be among the key beneficiaries. Banks account for nearly 40% of total market capitalization and offer significant liquidity.

Given this combination of resilient earnings growth, strengthening regulatory foundations, and more attractive valuations following the recent correction, maintaining exposure to high-quality Vietnamese banks remains compelling. Within the sector, private banks remain the more dynamic growth story yet continue to trade at roughly a 20% valuation discount to state-owned peers. Their greater agility in digital adoption and stronger focus on higher-yielding segments position them to potentially outgrow the market as credit demand gradually broadens. For investors seeking exposure to Vietnam’s structural banking growth story, private banks offer a compelling combination of strong earnings potential, improving operating efficiency, and more attractive valuations. We therefore retain BUY recommendations on selected leading private banks with strong balance sheets and sustainable growth profiles.

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