Standard Chartered has forecast a potential interest rate cut if the economic impact of Vietnam’s COVID-19 outbreak lasts beyond October.

Profits of the banking industry in the third quarter of 2021 would decrease by 19% compared to the previous quarter due to slowing credit growth and increasing provision expenses, Yuanta Securities Vietnam estimated.

Banks have been promoting the mobilisation of medium- and long-term capital through bond issuance to meet the State Bank of Vietnam (SBV)’s requirements on capital adequacy ratio (CAR).

An escalation in COVID-19 cases and deaths in July-August will undermine Vietnam’s previously strong recovery from the pandemic shock and may temporarily set back the positive rating momentum, said Fitch Ratings.

Banks will continue to tighten lending in risky sectors including securities, real estate, financial, and tourism business, seeing higher credit risks in the remaining months of this year, a survey carried out by the Monetary Forecasting and Statistics Department has said.

The State Bank of Vietnam (SBV) has flexibly operated monetary policy tools to maintain liquidity for the banking system, contributing to stabilising and recovering credit growth in the context of unpredictable impacts of the COVID-19 pandemic.

Governor of the State Bank of Vietnam (SBV) Nguyen Thi Hong has requested that credit growth be achieved in tandem with improving credit quality, with a focus on manufacturing and priority areas.

Demand for credit may increase sharply since the second quarter, especially in fields of industrial production, exports, trade and tourism, said a senior official of the central bank.

Credit growth will expand significantly from Quarter 2 and exceed the State Bank of Vietnam (SBV)’s target of 12% for the year as a whole if the pandemic is brought under good control and the vaccination campaign proves effective, according to insiders.

Real estate sales will be another key driver of credit growth, as apartment supply and sales are likely to pick up in 2021.