Moody’s has maintained a stable outlook for Vietnam’s banking system at “Ba2 stable”, highlighting supportive domestic operating conditions but warning that high US tariffs can negatively impact the nation’s economic growth.

“We expect the operating environment for banks to remain stable as higher government spending and public investment will partially offset the immediate negative impact of US ( ‘Aaa negative’ ) tariffs on the country’s economic growth, consumer and business confidence,” according to Moody’s latest study on Vietnam. US President Donald Trump has announced a 46% tariff on imports from the Southeast Asian nation.

“Asset quality will remain a concern as banks still have substantial debt outstanding to the real estate sector while declining loan loss reserves provide limited buffers. High loan growth will also pose asset risks,” Moody’s adds.

Nonetheless, the State Bank of Vietnam’s efforts to lower bank lending rates and keep inflation stable will mitigate asset risks, Moody’s says. Profitability will be stable, as net interest margin ( NIM ) stability and improvements in non-interest income will offset still-high loan loss provisions.

The rating agency is confident capital ratios in the banking system will hold steady as internal capital generation will be sufficient to cover asset growth. Still, funding and liquidity will remain tight.

Negative impact

As for the Trump administration’s tariffs, Moody’s is of the view that the policy can negatively impact Vietnam's real GDP growth in 2025-26, given the country's high direct export exposure to the US, while broader macroeconomic uncertainty will subdue consumer and business confidence. Foreign direct investment ( FDI ) is expected to slow as companies await potential changes in US trade policies and take time to recalibrate their investment plans.

“However, the domestic investment climate remains supportive through higher government spending and public investment,” Moody’s notes.

“We also expect inflation to remain stable in 2025 and as a result, policy rates will remain at current levels. This, combined with robust tourism and domestic consumption, will help sustain some of Vietnam's economic momentum. The real estate sector has weighed on banks' asset quality since late 2022.”

The property sector has started to gradually improve, supporting the operating environment for banks, the rating agency says.

However, asset quality will remain under pressure. Non-performing loan ratios stayed flat at 2.0% as of December 2024, the same level as in the previous year, despite an increase in the stock of problem loans due to faster loan growth.

Stable inflation

In the next 12 to 18 months, Moody’s says, the banks’ asset quality will benefit from stable inflation and still-low interest rates, which will alleviate borrowers' debt burdens and mitigate the negative impact from tariffs. Lending rates remained low at 7.7% in 2024, from 9.0% in 2022.

In 2024, Vietnamese banks' exposure to real estate developers remained high. Regulatory changes have prompted some recovery of the real estate sector, but those with exposure to highly leveraged and financially weaker companies will face higher asset risks in 2025 as the property sector's recovery will be slow and uneven.

As for the Vietnamese government’s capacity to provide support, Moody’s believes its competence will be stable. “We expect the government to continue providing support to banks, if needed, mainly in the form of liquidity assistance and regulatory forbearance from the central bank, as it has in the past.”

The National Assembly – the nation’s legislative body – expects the country’s 2025 GDP growth to be at least 8%. However, the World Bank's latest East Asia and Pacific Economic Update predicts that the export-driven economy will grow 5.8% this year due to increased trade policy uncertainty.

Given the country’s exposure to the external environment, stronger-than-expected distortions in trade policy could adversely impact its exports and growth, the World Bank says.