Hanoi (VNA) – Moody’s Investors Service has changed its 12-18month outlook on the banking system in Vietnam (Ba3 stable) to stable from positive.

It released thereport “Banking System Outlook – Vietnam: Economic growth and improving assetquality support stable outlook”, on November 8.

The stable outlook isbased on Moody's assessment of six drivers: operating environment (stable); assetrisk (improving), capital (stable); funding and liquidity (stable);profitability and efficiency (improving); and government support (stable).

With the operatingenvironment, Moody's says that strong economic growth in Vietnam will supportthe banks' operating environment.

The credit rating agencyexpects Vietnam's real GDP growth to remain one of the strongest in ASEAN, at6.7 percent in 2018 and 6.5 percent in 2019, driven by improved economiccompetitiveness, exports and domestic consumption.

Onasset quality, Moody's says that Vietnamese banks will show improved assetquality over the next 12-18 months, because strong economic growth willtranslate into improvements in borrower repayment capabilities and enable thebanks to accelerate the write-offs of legacy problem assets.

The banks' capitalizationwill prove broadly stable. A moderation in asset growth will ease pressure onthe banks' capitalization, while internal capital generation will continue toimprove, along with profitability at most rated banks.

Fundingwill stay stable as loan growth slows. In particular, Moody's points out thatthe banks' deposit growth has been strong, reducing their reliance on market-sensitivefunding sources, such as interbank borrowings. As loan growth moderates to thepace of deposit expansion, the banks' loan-to-deposit ratios will remainlargely stable.

Asfor profitability, the banks will show better profitability because interestmargins will continue to improve, as the banks boost loans in thehigher-yielding retail and small and medium-sized enterprise segments. At thesame time, credit costs will decline, as more banks resolve their legacyproblem assets.

Withgovernment support, Moody's says that the Vietnamese government will continueto support the country's banks when needed, mainly in the form of liquidityassistance and forbearance from the central bank.

Moody'srates 16 banks in Vietnam, which together accounted for 61 percent of totalbanking system assets at the end of 2017.

Threeof the 16 banks — JSC Bank for Investment & Development of Vietnam (BIDV,B1 stable, b2), JSC Bank for Foreign Trade of Vietnam (Vietcombank, B1 stable,ba3) and Vietnam JSC Bank for Industry and Trade (Vietinbank, B1 stable, b1) —are controlled by the government. The other 13 are privately owned joint-stockcommercial banks.-VNA