In a recent report, a securities company provided an updated analysis of the banking sector. Notably, in Q1 of 2025, Techcombank (TCB) and Vietcombank (VCB) maintained their leading positions in the CAMEL rankings, while SeABank (SSB) made a significant leap forward. SSB’s improved ranking is mainly attributed to profit growth, boosted by a windfall profit from divesting from PTF, its consumer finance subsidiary.
The CAMEL model is constructed based on five factors: Capital, Asset, Management, Earnings, and Liquidity.
Declining Dividend Trend
Regarding Capital, the analysts observed a trend among banks to cut dividends and restart capital sale plans. Specifically, several banks reduced cash dividends in 2025, including MBB, VPBank (VPB), and Techcombank (TCB). MBB plans to repurchase 100 million shares during 2025-2026. VPB and TCB will establish a life insurance company, and VPB also aims to set up an asset management company, which will lower their capital adequacy ratios. This could be a reason for banks to opt for lower cash dividend payouts to maintain their capital adequacy ratios.
Non-Performing Loan Situation
Asset quality is predicted to gradually improve with the real estate market’s recovery and the legalization of Resolution 42. However, the analysts caution about the impact of IFRS application and US tariffs.
Asset quality among banks deteriorated in Q1/2025, with a rise in the non-performing loan (NPL) ratio and a decline in the loan loss reserve (LLR) ratio. Based on discussions with several banks, the primary reason for the increase in NPLs is the rise in new non-performing loans rather than restructured loans under Circular 02 and Typhoon Yagi. The industry-wide NPL index (aggregated from 28 banks) increased by 23 basis points from the previous quarter to 2.16% in Q1/2025, while the LLR ratio continued to decrease to 80%.
Notably, the LLR ratio has been below 100% since 2023, which could exert pressure on loan loss provisions, especially with the upcoming application of IFRS standards.
Management Efficiency and the Impact of Digitization in the Banking Sector
Digitization has contributed to reduced operating costs for banks. In Q1 2025, the median cost-to-income ratio (CIR – adjusted to exclude net other income) for the industry (28 banks) stood at 39%. A high CIR indicates inefficient management and cost control, and banks with a CIR above 50% face challenges in improving profitability.
Diversifying Income Sources Beyond Interest Income
Banks are striving to increase non-interest income. Fee income accounted for only 9% of total operating income in Q1/2025 (unchanged from the previous quarter but slightly lower than the 10% in Q1/2024). However, banks are diversifying their non-interest income, and several banks, such as HDB, MBB, TCB, and VPB, recently planned to become financial groups by establishing insurance and asset management companies to tap into non-interest income sources.
Nonetheless, it takes time to expand these business lines, which may not immediately offset banks’ reliance on net interest income. However, in the analysts’ view, policy changes—such as the overall orientation towards diversification and reducing the economy’s dependence on bank capital—along with increasing competition in traditional lending activities, will drive banks toward more diverse revenue models in the future.
Finally, regarding liquidity, the analysts believe that the State Bank will maintain a loose monetary policy. The government remains committed to an ambitious 8.0% GDP growth target for 2025, despite market instability caused by US tariffs. Therefore, the analysts expect the State Bank to continue its loose monetary policy to support the economy, especially with the weakening US dollar and low domestic inflation (which is on a downward trend). From the beginning of the year to May 16, the State Bank injected VND 814 trillion (~USD 31 billion) into the financial system through the OMO channel and has stopped withdrawing liquidity since February 24, 2025.
“Transforming Bad Debt into a Market Revival.”
The narrative around distressed debt needs to shift; it’s not just about debt collection, but an opportunity to revive the market. A robust and synchronized approach is required, and the government should consider introducing special measures to aggressively tackle bad debt.
“Striking a Balance: Navigating Debt Collection and Borrower Protection”
“It is imperative to enshrine the successes of Resolution 42 into law to safeguard the legitimate rights of both banks and borrowers. The legislation should provide a framework that protects the ability of financial institutions to confiscate assets, while also ensuring that the property rights of borrowers are respected and upheld.”
Unleashing the Power of Capital: Unveiling the Enormous ‘Dormant Capital’
The magnitude of non-performing loans in the economy has surpassed a staggering threshold of 1 million billion Vietnamese dong. This colossal amount of “dead capital” is a festering wound, draining resources in a capital-starved economy and perpetuating the plight of elevated interest rates on loans.
Unleashing the Power of Capital: Unveiling the Enormous ‘Dormant Capital’
The magnitude of non-performing loans in the economy has surpassed a staggering threshold of 1 million billion Vietnamese dong. This colossal amount of “dead capital” is a wasteful burden on the economy, especially in a context of capital scarcity, and it contributes to keeping borrowing rates high.
“Revolutionary Proposal: Exploring a Special Lending Authority with a 0% Interest Rate”
The government proposes to shift the authority to decide on special lending at a 0% interest rate and without collateral from the Prime Minister to the State Bank.
