Banking Sector | Initiation Report, Credit Expansion Remain Robust

Vietnam Banking Sector Overview

Vietnam’s banking sector remains the cornerstone of the country’s economic growth and serves as the key inter mediary channeling capital into production, consumption, and infrastructure development. After navigating two challenging years marked by subdued credit demand, liquidity strain, and regulatory tightening, the sector is entering a new cycle characterized by robust credit growth, rising fee-based income, capital reinforcement, and quick digitalization.

System-wide credit growth is forecast to reach 18–20% in 2025, up from 15% in 2024, and sustain 16–18% p.a. through 2026–2028 to align with the government’s 10% GDP growth target. Although NIM compression is expected to persist due to lower lending rates and funding competition, banks with strong retail franchises, digital capabilities, and diversified income streams are well-positioned to preserve profitability.

Sector Outlook

The banking sector is expected to maintain a high growth momentum over the 2025-2028 period. As competition continue to intensify, the medium-term growth story will rely not only on lending capacity but also on banks’ ability to diversify income and strengthen capital buffers amid regulatory tightening. Banks who have strong retail base, advanced digitalization standard, diversified non-interest income sources, solid wealth management arm,  and financial ecosystem expansion, would have better growth prospect and ability to maintain profitability.

1.Strong Credit and Lending Growth, Yet With Rising Pressure:

Credit growth is projected at 18–20% in 2025, driven by supportive monetary policy and robust domestic demand. However, deposit growth lags behind, tightening system liquidity and pushing banks toward bond issuance and long-term borrowings to manage funding costs.

While credit demand accelerates, deposit growth continues to lag, creating liquidity and funding strain across the banking system. Banks are increasingly seeking alternative capital sources such as bond issuance and long-term borrowings to ease pressure on funding sources but funding costs could elevate, especially for banks with low CASA ratio.

To diversify beyond large corporate and real estate exposures, banks are expanding into retail, consumer, and SME lending, leveraging digital platforms, alternative credit scoring, and partnerships with fintechs to reach underserved market segments.

2. NIM Compression and Income Diversification:

To diversify beyond large corporate and real estate exposures, banks are expanding into retail, consumer, and SME lending, leveraging digital platforms, alternative credit scoring, and partnerships with fintech to reach underserved market segments.

As margins tighten, banks will push fee-based services such as insurance distribution, bond trading, advisory, transaction services, bancassurance, etc. Monetizing data, cross-selling, and platform services become more critical for earnings.

3. Regulatory Reform and Capital Strengthening:

The SBV has signaled moves to reduce strict administrative caps on lending and shift more toward market-based mechanisms. Over 2025–2028 period, this liberalization will give larger, better-capitalized banks more room to grow, but also raise competition and pressure on risk discipline.

4. Digital Transformation, Fintech Convergence, And “Banking as Platform":

Already, many banks conduct a high percentage of transactions digitally.  Over 2025–2027, banks will ramp up digital channels, mobile apps, omnichannel services, and reduce reliance on physical branches. Reduced CIR and reduced human resources.

5. Valuation And Top Picks:

Our favorite stocks include VCB (TP 74,800 VND/share,+26.1%), TCB (TP 38,750 VND/share,+2.9%), VPB (TP 37,800 VND/share,+24.5%), and STB (TP 72,600 VND/share,+30.6%), supported by attractive risk-reward profiles, resilient earnings, and structural capital advantages. Some of the top picks are not in the buy range but if the markets adjust, it would represent opportunity to accumulate the shares.

We also highlight HDB with its strategic investor potential and upside from possible valuation re-rating and STB, which remains a turnaround story supported by steady restructuring progress and improving asset quality.