VIETNAM’S banks have been slow to adopt digital transformation, but there is a strong potential for financial technology (fintech) to grow, rating agency Moody’s said in a report this month.
It has changed its outlook on Vietnam’s banking system to “stable”, from “positive” previously.
Moody’s said that the banks’ pace of transformation has lagged behind peers in the region, as lenders have been addressing issues related to a credit bust in 2011 and 2012 - such as problem loans and cross-ownership among lenders, and weak transparency and corporate governance.
“So far, banks have focused on enhancing their online and mobile banking platforms to enable existing customers to handle more transactions online,” the report added.
“Still, Vietnam has strong growth potential for fintech development, and technology startups specialising in financial services are emerging, led by those offering digital payment services.
“Banks that have dealt with legacy problems will have capacity to build digital services on their own or in partnerships with fintech firms.”
Among the drivers for fintech development that Moody’s cited was the low banking penetration - some one-third of adults have accounts - with fintech possibly closing the gap in access to financial and banking services, especially for people who live in rural areas.
Vietnam’s young and increasingly affluent population could also be an audience for advisory services, such as wealth management, from banks and fintech firms, said the report.
“The Vietnamese government is keen to facilitate fintech innovation as part of their efforts to improve financial inclusion and to turn the economy into a cashless one by 2025,” it added.
“To this end, the State Bank of Vietnam in March 2017 established a steering committee tasked with formulating a strategy for accelerating fintech development and a legal framework for fintech companies.”
Moody’s outlook assessment for the sector - based on a projection for the next 12 to 18 months - rates Vietnam banks’ asset risk and profitability and efficiency as “improving”, while operating environment, capital, funding and liquidity and government support were deemed “stable”.
Moody’s warned that the credit growth of recent years could hit asset quality as new loans mature, but noted that this situation is unlikely to take place during the outlook period.
Ccredit growth will moderate to 16 per cent in 2018 from 20 per cent in 2017, as the State Bank of Vietnam works to keep inflation under its 4 per cent target, the report added. The agency expects credit growth to be driven by loans to retail borrowers and private businesses.
Analyst Rebaca Tan said in a statement: “Asset risks are still evident after years of rapid credit growth, and negative spillovers from the escalating trade tensions between the US and China will see Vietnam vulnerable to slower trade growth.”
Still, Moody’s expects some mitigation of the risk, from China’s possible intervention to protect its domestic companies from new tariffs - a move that would support supply chains in the region.