Vietnam banks face tight liquidity as deposit growth lags

Banks have turned to the interbank market and bond issuance but it leaves them exposed to interest rates.

Vietnam’s banking liquidity will likely stay tight in the near term on economic risks and keen competition, according to Fitch Ratings.

These will pressure banks’ lending margins and profitability, the ratings agency said.

Deposit growth has lagged loan growth amidst competition for market share. The tightened funding conditions puts smaller banks under the most pressure. Many banks have turned to the interbank market and bond issuance to bridge the gap.

“We believe this raises system liquidity risks and leaves earnings more exposed to fluctuations in interest rates,” Fitch warned.

A rising share of corporate lending—which typically earns lower yields—are also squeezing banks’ net interest margins.