Vietnam's Banks Face Vulnerability Amid High Growth Targets, Fitch Warns

Fitch Ratings has warned that Vietnam's banking system could face significant pressure as it strives to meet capital demands to support the economy's ambitious double-digit growth target for 2026. In the first half of this year, Vietnam's GDP grew by 8.18%, the highest rate in over a decade for the same period. However, the government, under Prime Minister Le Minh Hung, has set an economic development target of 11.9% for the remainder of the year to achieve double-digit growth overall. According to data released by Fitch Ratings on August 6, Vietnamese banks remain more vulnerable to external shocks compared to their regional peers. Fitch forecasts that the total credit balance of Vietnam's banking system will increase by approximately 18% in 2026, exceeding the State Bank of Vietnam's directional target of 15%, as banks continue to pursue credit expansion. While acknowledging that the State Bank of Vietnam still has room to support the economy for the rest of 2026, authorities remain cautious about risks such as inflation, system stability, and exchange rates, particularly the pressure on the Vietnamese dong's depreciation due to potential interest rate hikes by the US Federal Reserve. Fitch emphasized that rapid credit growth continues to outpace deposit growth in the Southeast Asian nation of 100 million people, leading to tighter liquidity and narrowing net interest margins. "This indicates that the ability of domestic banks to meet the high credit demands of businesses and individuals is increasingly under pressure," the agency assessed. Fitch Ratings forecasts Vietnam's GDP to grow by 6.8% in 2026 and 6.7% in 2027, with infrastructure investment being a key growth driver. Vietnam had previously raised its infrastructure investment target to 7% of GDP last year, up from 6% of GDP, to support its ambitious double-digit economic growth goals. Beyond Fitch, other international financial bodies are also cautious, projecting growth rates for Vietnam significantly lower than those committed by its leadership. Investment firm FSMOne forecasts Vietnam's growth at around 8%, with net exports acting as a drag. After recording continuous trade surpluses for 10 consecutive years (2016–2025), Vietnam incurred a cumulative trade deficit of over $16 billion in the first six months of 2026. This growth figure is similar to the forecast by DBS Bank. Meanwhile, a survey of economists by Bloomberg, published in July, showed a median growth forecast of 7.3%. The impressive growth in the second quarter was attributed by many to Resolution No. 29/2026/QH16 on land handling, which facilitated the release of approximately $130 billion in capital previously frozen during the anti-corruption campaign of 2022-2024. However, Fitch assesses that the large-scale construction wave seen in Q2 2026 is unlikely to be repeated as inventories gradually decrease. The State Bank of Vietnam has also limited credit growth for 2026 to 15% and tightened real estate lending. The nation of over 100 million people, a manufacturing hub in Southeast Asia, aims for economic growth above 10% this year but faces numerous challenges, including a widening trade deficit and inflationary pressures. In July 2026, Vietnam recorded a trade deficit of $3.587 billion, an increase of nearly $1 billion from $2.64 billion in June, according to the General Statistics Office. In the first seven months of the year, Vietnam's cumulative trade deficit exceeded $20 billion, surpassing the 2008 record of $18 billion, which was the highest ever recorded in Vietnam's trade history. Furthermore, Hanoi is facing three trade investigations by Washington in 2026, including probes into intellectual property rights violations, forced labor, and overcapacity. The forced labor investigation began on March 12, 2026. According to the investigation's findings published in the US Federal Register on July 24, 2026, the Office of the United States Trade Representative (USTR) stated that Vietnam is one of 54 economies that "have not effectively banned and enforced the prohibition of imports of goods produced with forced labor." Hanoi has denied this accusation, but the US has imposed a new tariff of 12.5% on Vietnam, effective July 25. Source: BBC Vietnamese