Banking stocks come under pressure

Shares of several Vietnamese banks fell on October 19 after the State Bank of Vietnam (SBV) instructed credit institutions to immediately lower deposit and lending rates to support the economy and stabilize the monetary market.

ACB shares closed down VND350 at VND20,250 (US$0.77), while BIDV (BID) lost VND300 to VND33,650 (US$1.28) and MBBank (MBB) declined VND150 to VND19,700 (US$0.75).

Vietcombank (VCB) dropped VND700 to VND56,200 (US$2.14), VietinBank (CTG) fell VND600 to VND30,000 (US$1.14), and VPBank (VPB) shed VND500 to VND24,000 (US$0.91). SSB and SHB declined by VND200 and VND100 per share, respectively.

Foreign investors also sold millions of shares on a net basis across several banks, including ACB, BID, CTG, HDB, SHB and VCB, adding further downward pressure on prices.

Meanwhile, several consumer, retail and securities stocks, including MSN, MWG, SSI and TCX, gained ground.

The contrasting performance highlighted a divergence among market sectors, although there was insufficient evidence to conclude that the interest rate cuts directly drove gains in those stocks.

The market movements followed an SBV directive issued on October 18 requiring credit institutions to reduce listed deposit rates for terms of six months or longer by at least 0.5 percentage points annually.

Banks were also instructed to lower lending rates, with reductions of 1.5-2 percentage points annually targeted at production, business activities and priority sectors.

At a meeting on October 19, SBV Governor Pham Duc An reiterated the need for immediate rate cuts and urged banks to reassess their profit targets, allocating resources to support both existing borrowers and new customers.

The governor warned that banks reporting strong profit growth while businesses continued to face high borrowing costs could create the impression that the banking system was benefiting at the expense of struggling enterprises.

Bank profits face pressure as outlook diverges

In theory, lower deposit rates reduce banks' funding costs, while cheaper loans help businesses recover and expand production.

In practice, however, the situation is more complicated. Banks have recently experienced rising funding costs, while credit demand across the economy remains high.

As of the end of the previous week, deposit mobilization had increased by 11.22%, compared with credit growth of 11.44%.

The gap indicates that lending is expanding faster than deposits, adding pressure on banks to balance their funding sources at a time when attracting deposits remains challenging.

Deposit rates have also risen considerably during 2026.

According to figures cited from SSI Research, deposit rates at state-owned commercial banks had reached approximately 8.3% annually by September.

Rates at leading joint-stock commercial banks ranged from 8.8% to 9.4%, while some smaller banks offered rates of 9.8-10%.

If lending rates fall faster than funding costs, banks' net interest margins (NIMs) will come under pressure.

This could slow profit growth, particularly for lenders facing intense competition to retain deposits.

SSI Research forecasts that the banking sector's average NIM could edge down by two basis points to 3.11% in 2027.

Within the sector, state-owned commercial banks are expected to record a two-basis-point increase, while joint-stock commercial banks could see their margins decline by eight basis points.

Thien Viet Securities (TVS) also expects greater divergence in banking stock performance.

Credit growth remains a key driver of earnings in 2026, but higher funding costs, limited prospects for NIM improvement and non-performing loan risks could slow industry profit growth from 2027.

Provisioning expenses may become more pronounced during 2027-2028, following a period of rapid credit expansion.

Another challenge is whether banks can deliver meaningful reductions in deposit rates.

Even when listed rates are lowered, banks may still face pressure to retain depositors through additional interest incentives, gifts, certificates of deposit or individually negotiated rates for large deposits.

If such practices remain widespread, actual reductions in deposit costs could vary considerably across banks and customer groups.

Vietcombank Chairman Nguyen Thanh Tung said lowering deposit rates is currently the banking industry's biggest challenge.

He affirmed that banks, particularly state-owned commercial lenders, are prepared to accept lower profits to support businesses.

However, he stressed that interest rate reductions must be genuine and should not be accompanied by additional administrative requirements or conditions.

The effectiveness of the policy will also depend on broader macroeconomic conditions.

Vietnam's consumer price index (CPI) rose 5.08% year-on-year in September, while average inflation for the first nine months reached 4.52%.

Elevated global oil prices have further increased inflation risks.

If domestic interest rates decline while international rates remain high, pressure on the Vietnamese dong's exchange rate could re-emerge.

Regarding credit quality, the requirement to reduce interest rates does not mean banks can relax lending standards.

Lenders must continue managing risks, assessing collateral, classifying loans and setting aside provisions in accordance with regulations.

As a result, small businesses and new borrowers without strong credit histories or suitable collateral may continue to face difficulties accessing financing.

On the positive side, lower borrowing costs could help businesses recover, improve cash flow and strengthen their ability to repay loans, potentially improving banks' asset quality over the longer term.

However, these benefits will take time to materialize in financial results, while pressure on net interest margins and funding costs could emerge much sooner.

The outlook for banking stocks will therefore depend heavily on each lender's ability to control deposit costs, maintain stable funding and preserve credit quality.

Banks with a strong base of current account and savings account (CASA) deposits, access to low-cost funding and effective risk management may prove more resilient.

By contrast, lenders heavily dependent on high-interest deposits could face greater pressure on profit margins in the coming period.

Manh Ha