Vietnamese Banks' Profit Margins Squeezed by Rising Deposit Costs

Rising deposit rates and a lag in adjusting lending rates continued to compress Vietnamese banks’ net interest margins (NIM) in the first quarter, with analysts warning that a significant recovery is unlikely in the near term.

The average NIM for 27 listed banks stood at 2.87 per cent in the first quarter of 2026, a decline from 2.93 per cent in the fourth quarter of 2025. Of the institutions surveyed, 20 reported narrower margins.

The pressure stems from a widening gap between credit and deposit growth. In 2025, credit growth across the sector hit a record 19.1 per cent, while deposit growth trailed at approximately 14-15 per cent. This disparity intensified in the first quarter of this year, as credit expanded by 3.18 per cent while deposits grew by only about 1 per cent, straining system liquidity and fueling competition for capital.

This competition pushed deposit rates sharply higher in the early months of 2026, with some long-term products offering rates exceeding 9 per cent per annum. While banks have adjusted lending rates upward, NIMs remained under pressure because increases in lending rates typically take longer to implement than hikes in deposit rates.

Despite the sector-wide pressure, some banks performed well. VPBank recorded the highest NIM at the end of the first quarter at 5.17 per cent. It was followed by HDBank at 4.41 per cent, KienlongBank at 4.06 per cent, MB at 3.85 per cent and Techcombank at 3.66 per cent.

Nguyen Quang Huy, CEO of the Faculty of Finance and Banking at Nguyen Trai University, said the industry faced a “double challenge” in the first quarter, grappling with both shrinking NIMs and declines in certain non-interest income streams. “This is a sign that the sector’s profit growth potential is narrowing significantly compared with previous periods,” he said.

Huy suggested that NIMs could see a modest improvement in the coming quarters if funding pressures ease and capital returns to the banking system, following a period of heightened demand for gold and high-yield savings products. However, he cautioned that a strong recovery is unlikely in the short term due to global economic uncertainties, including oil prices, inflation, geopolitical tensions, and supply chain risks.

Bui Van Huy, vice chairman and head of Investment Research at FIDT JSC, agreed that NIMs would remain under pressure, particularly during the second quarter. “The reason is that funding costs typically react with a lag following a period of rising deposit rates, while asset yields cannot be adjusted at the same pace,” he explained. “Medium- and long-term loans, preferential-rate lending programmes and the need to support customers make it difficult for banks to raise lending rates excessively.”

Le Thanh Tung, a board member at state-owned VietinBank, noted that recent domestic and international macroeconomic developments had caused the sharp rise in interest rates. He said VietinBank’s baseline scenario is for the pace of rate increases to slow and gradually stabilise. However, he warned that if external shocks persist, interest rate pressures could continue throughout 2026.

In response to the challenging environment, many banks plan to restructure their credit portfolios, focusing on higher-yielding and more efficient loans to improve margins.

Looking ahead, Huy from FIDT JSC said NIMs could improve in the second half of 2026, but the extent of the recovery will likely vary significantly between institutions. Banks with high current account savings account (CASA) ratios, large customer bases, a high proportion of short-term lending, and strong asset quality are better positioned to protect their margins.

Conversely, banks with elevated funding costs, high loan-to-deposit ratios, lower bad debt coverage, or loan portfolios heavily exposed to the real estate and consumer lending sectors are expected to face prolonged pressure.