Quite a few banks saw their loan-to-deposit ratios (LDR) approach 100% in late Q4 2025, according to SSI Research. Liquidity had grown increasingly dependent on State Treasury deposits, the OMO channel, and foreign capital rather than core deposit growth — setting the stage for fierce competition in Q1 2026.
Total customer deposits across the system have risen just 0.2% year-to-date, but the split tells the real story: state-run banks saw a fall of 0.7% while private banks posted a 1.3% uptick, reflecting a clear migration of savings toward higher-rate offerings. At their peak, deposit rates reached 9–9.5% — up 120–150 basis points.
The sluggish deposit picture reflects both structural pressures and seasonal cash flow dynamics: a trend toward higher cash holdings following recent regulatory updates, slower money turnover after heavy real estate disbursements in prior years, and the typical year-start dip in corporate deposits.
Against this backdrop, banks have leaned on alternative funding — certificates of deposit, bonds, and foreign capital — with notable issuance volumes at BID (+VND78 trillion), ACB (+VND23 trillion), and MBB (+VND22 trillion).
The outlook is cautiously optimistic. Deposit growth should recover as high interest rates continue attracting savers, corporate deposit seasonality normalizes, and recent tax policy adjustments for household businesses take effect. The successful deployment of foreign capital would provide additional relief. On the credit side, double-digit lending rates are likely to cool demand, easing some liquidity pressure.
That said, funding conditions remain sensitive to regulatory developments. If new liquidity measures — such as the credit-deposit ratio (CDR) — are introduced abruptly, without a transition period or phased roadmap, they risk reigniting pressure on capital mobilization.
Alongside the funding squeeze, the pullback in net interest margin (NIM) after its Q4 2025 recovery deserves attention. State-run banks have seen NIM improve, but private banks remain under pressure from higher funding costs. System-wide, NIM fell 20 basis points quarter-on-quarter and 11 basis points year-on-year to 3.04% in Q1 2026.
Among individual banks, VCB and CTG stood out with a 14-basis-point NIM increase, supported by stronger capital structures. At the other end, BID (down 36 basis points) and HDB (down 72 basis points) saw sharp drops in asset yields. STB was a special case — its NIM rose 34 basis points quarter-on-quarter, but largely off a weak Q4 2025 base dragged down by asset quality issues.
With LDR and deposit rates still elevated, NIM will likely remain under pressure — making margin management one of the key challenges for banks in the quarters ahead.
On asset quality, the system’s NPL ratio edged up to 1.88% in Q1 2026 from 1.76% in Q4 2025 — though still below the 2% recorded a year earlier. Group 5 (potentially irrecoverable) loans continued to dominate, accounting for roughly 60% of total NPLs. More notably, Group 2 (special mention) loans expanded 12% quarter-on-quarter, led by ACB, VCB, TPB, and TCB — a sign that risk pressure is building. Credit costs held broadly stable at 1.15%, while the NPL coverage ratio slipped to 86%, down 33 basis points.
Non-interest income has normalized, shifting from opportunistic market-driven gains to core earnings. The boom in government bond trading profits (2024–2025, when yields were low) has faded as yields surged in 2026. Foreign exchange and securities trading income fell 20% and 91%, respectively.
Fee income, however, rebounded sharply — up 42% against a low base — driven by a recovery in bancassurance and payment services. Debt recovery income remains a key pillar for state-run banks, with BID and CTG each booking strong figures (VND2.2 trillion and VND2.1 trillion, respectively).
Looking ahead, the shift toward fee-based income is expected to continue, with bancassurance and the growth of online transactions offering room for further gains — partially offsetting the drag from weaker market-related income.
In the near term, banks are likely to continue grappling with funding constraints and NIM compression, according to SSI Research. Asset quality risks will grow more visible in a sustained high-rate environment. Compounding this, pending regulatory changes — the CDR, liquidity coverage ratio (LCR), and net stable funding ratio (NSFR) — could tighten liquidity conditions and drive up costs if no clear transition roadmap is established.
Against this backdrop, operational divergence across banks will widen. Those with solid capital structures, adequate buffers, and disciplined risk management will be best placed to weather the pressure.
