Banks sustain profit growth as funding costs squeeze margins

Banks are maintaining profit growth, but rising deposit rates and funding costs are putting pressure on margins and casting doubt on the sector's earnings outlook. At the end of the second quarter of 2026, 27 listed banks' after-tax profit reached $3.5 billion, an 18 percent increase from the previous quarter and a 25 percent increase year-over-year.

Of these banks, 18 reported profit growth, six experienced declines, and three remained flat. Do Minh Trang, director of Market Analysis and Strategy at ACB Securities Co., Ltd., explained that while high interest rates may seem to boost banks' earnings, they actually have several adverse effects. The high deposit rates, which are currently at 9 percent or higher for six- to 12-month terms, are eroding banks' net interest margins (NIM).

This is due to a combination of strong credit growth and a growing gap between deposits and lending. Banks are forced to raise deposit rates for longer maturities to retain funds, and most customer deposits are in short-term maturities, while loans are predominantly medium- and long-term. In the third quarter, many banks are expected to continue posting profit growth, but the sector-wide net interest margin (NIM) faces pressure from higher funding costs.

The NIM in the third quarter of 2026 is projected to be around 2.9 percent, the lowest level in 10 years. Banks are responding to these challenges by rolling out lower-cost credit and large preferential credit packages, aiming to support businesses and economic growth. However, the gap between stronger and weaker banks is expected to widen, as funding costs, liquidity pressures, and deteriorating asset quality increasingly differentiate banks with resilient balance sheets from those reliant on more expensive and strained funding.