Vietnamese banks to improve gradually in 2017: Fitch

Under the report titled "2017 Outlook: Vietnamese Banks," Fitch said an improving macroeconomic environment with the stable currency and benign inflation should counteract structural systemic weaknesses, which supports a stable outlook for Vietnam’s banking sector in 2017.

Fitch expects asset quality, funding and liquidity to remain steady as the economy grows steadily. However, structural systemic weaknesses remain, such as thin capital buffers, large non-performing loans (NPL) stock and weak profitability.

“We believe the NPLs will take time to be resolved due to various legal impediments. The understatement of problem loans in the low-reported NPL ratios across the system suggests that the capitalisation of banks is likely to be weaker than their reported capital ratios,” Fitch said in the new report.

Banks reported that total capital-adequacy ratios were low at end-June 2016, at 12.1 percent and 9.3 percent for joint-stock commercial banks and State-owned banks, respectively.

Capital buffers will also remain under pressure as Basel II is being phased in at a time when internal capital generation remains lethargic, according to Fitch.