Vietnam Banks Face Higher Funding Costs

What is changing fastest is not just the level of funding, but the composition. Paper issuance — certificates of deposit and other bank securities — has nearly doubled to 1.96 quadrillion dong, or about 9.8% of total funding, from 7.3% two years ago. That matters because this is the most expensive part of the liability stack. Banks are using it to plug the gap left by slower deposits, and they are paying up to do it. The result is structurally higher funding costs, not a temporary blip.

That is especially important for private lenders and banks with weaker CASA franchises. The state-owned banks and wholesale lenders still have access to cheaper and stickier pools of money, including corporate deposits, Treasury funds and institutional balances. The new rule allowing Treasury deposits to count partly toward funding for LDR calculations gives them another edge. By contrast, smaller retail banks remain dependent on household deposits, which are stable but costly and offer less current-account liquidity.

The Treasury flow itself has become a meaningful source of support. Time deposits from the State Treasury at the four state-owned banks climbed 45% to 716 trillion dong by the end of the second quarter. That is helping the big state lenders preserve lending capacity without matching the aggressive rate hikes seen elsewhere. But it is a temporary advantage tied to public spending and tax timing, not a durable structural fix.

For investors, this is the kind of funding cycle that separates winners from laggards. Banks with high CASA, broader retail franchises and access to Treasury money should defend margins better. Those forced to rely on wholesale paper or interbank funding will face a tougher second half, especially if loan demand remains strong and the battle for deposits continues. The market should look past headline loan growth and focus on who is funding that growth at the lowest cost.

The opportunity, in my view, is to own the banks with the cheapest liability mix and strongest pricing power, while staying cautious on lenders whose growth is being bought with expensive paper. As long as credit is rising faster than deposits, Vietnam’s banking story is less about volume and more about margin discipline — and that is where the next earnings split will come from.