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Fitch believes borrowers' ability to service debt is under pressure, especially among consumers and small businesses in the worst-affected sectors such as wholesale and retail trade, hospitality and tourism.

Vietnam Banks' Asset Quality Risks Rise on New Virus Wave
A recent surge in Covid-19 infections in Vietnam is dampening its economic recovery and increasing asset quality risks for banks, says Fitch Ratings. Fitch-rated banks have adequate headroom in their Viability Ratings to weather the slowdown under our base case, but risks will continue to build unless the virus is contained and movement restrictions are lifted in 3Q21 as the authorities target.
Over 95% of Vietnam's cumulative Covid-19 cases occurred after 30 June 2021, forcing a large part of the country into lockdowns. High frequency economic statistics are indicating early signs of weakness in economic activity and the labour market, which could cause GDP growth to decelerate from the 5.6% in 1H21. Fitch believes borrowers' ability to service debt is under pressure, especially among consumers and small businesses in the worst-affected sectors such as wholesale and retail trade, hospitality and tourism.
Vietnamese banks had been riding on positive business momentum until the latest wave of infections, with most banks reporting brisk loan growth and steady earnings recovery in 1H21. This gives the banks more breathing room to withstand the potential slowdown and impairments in 3Q21. Fitch also believes that the regulator is likely to relax debt relief criteria for borrowers in the face of the virus resurgence, which will reduce reported loan delinquencies and reduce required credit provisions, protecting profitability and capitalisation.
Fitch's Outlooks on the Issuer Default Ratings of privately owned banks remain Stable, while those of state-owned and foreign-owned banks are Positive in line with the sovereign Outlook.

DIEP NGUYEN