Vietnamese banks poised for a gradual recovery in 2017: Fitch

Fitch cautioned over structural systemic risks however.

An improving macroeconomic environment with a stable currency and benign inflation should counteract structural systemic weaknesses, which supports the stable outlook for the sector in 2017, says Fitch Ratings in a new report.

Fitch expects asset quality and funding and liquidity to remain steady as the economy grows steadily. However, structural systemic weaknesses remain, such as thin capital buffers, a large NPL stock and weak profitability.

"We believe the NPLs will take time to be resolved, due to various legal impediments. The understatement of problem loans in the low-reported NPL ratios across the system suggests that the capitalisation of banks is likely to be weaker than their reported capital ratios," it said.

Banks' reported total capital-adequacy ratios (CAR) were low at end-June 2016, at a respective 12.1% and 9.3% for joint-stock commercial banks and state-owned banks.

According to Fitch, Capital buffers will remain under pressure as Basel II is being phased in at a time when internal capital generation remains lethargic.