Bright Prospects for Vietnamese Banking Stocks

9:13:00 AM | 3/5/2024

Often referred to as the monarch of the stock market, banking stocks, which constitute the largest sector by market capitalization, are anticipated to draw significant cash flows in 2024.

Banking stocks have exhibited exceptional performance in the past three months

This prospect is bolstered by sanguine forecasts for credit growth, fueled by low interest rates, an improved economic recovery, and a more vibrant real estate market. Concurrently, market valuations remain highly attractive.

Banking stocks have demonstrated superior performance over the past three months. Notably, numerous large-cap tickers have made substantial gains in the year leading up to February 24, with CTG (+36.7%), MBB (+37%), and TCB (+41.6%) leading the charge.

Remarkably, the strong growth was seen in only large-cap tickers. Meanwhile, many small lenders rose slightly or even declined.

In general, “king” stocks jumped high on optimistic investor confidence after supporting information about the legal corridor, especially for corporate bond and real estate market, spread out.

Besides, more support came from positive business results. Indeed, banks were the biggest contributor to the market profit in the fourth quarter of 2023. Net profit of the banking sector jumped 22.5% year on year in the quarter and rose 3.8% in 2023. VnDirect acknowledged that their positive business results were boosted by accelerated credit growth, a 20% growth of non-interest income (from fees and foreign exchange activities) and a 5% drop in costs.

Clearly, banks with double-digit growing stocks had outperforming net profit in 2023.

Banking stocks are highly appreciated and expected to continue “attracting cash” in 2024. Mr. La Giang Trung, CEO of Passion Investment, affirmed that banks will be the stock of 2024. This view is supported by sustained low interest rates and low valuation with P/E of 5-6 and P/B of 1-1.2. Banking stocks will have a lot of advantages to advance strongly.

Concurring with Trung’s views, Mr. Michael Kokalari, Director of Macroeconomic Analysis and Market Research at VinaCapital, found that bank stocks will benefit from profit growth, from about 7% in 2023 to 18% in 2024 and their valuations are currently one standard deviation below the 5-year average (currently traded at P/B of 1.8 and expected ROE of 17% in 2024).

“We expect Vietnamese banks' profits to be boosted by rapid credit growth to both real estate developers and new homebuyers, consistent with expectations on modest real estate recovery this year,” he noted.

Similarly, BSC Securities Company viewed the profit prospects of the banking industry as becoming brighter in 2024. The sector’s profit growth will revive, mainly driven by widening NIM but its pace will depend on credit demand and asset quality. However, BSC believed that the sector’s valuations already reflect the above-mentioned uncertainties.

“BSC believed that this sector’s current valuations are still good for buying, especially for retail investors. We also note that stricter risk management regulations and improved balance sheet health are key differences in the current cycle compared to the past,” BSC analyzed.

ABS Securities Company also optimistically expected that the banking industry will gradually recover in 2024 thanks to many supporting factors like lower interest rates and real estate market recovery.

Specifically, the legal corridor will be further improved with the introduction of the Law on Real Estate Business (amended) and the Law on Credit Institutions (amended). In addition, the fact that Circular 02 and Circular 06 are still valid until mid-2024 will help banks proactively support their customers who are facing difficulties. Besides, record low interest rates are expected to continue in 2-3 first quarters of this year, supporting companies to slash borrowing costs, improve profits and increase credit demand for business and consumption. NIM is expected to improve as lending interest rates increase more slowly than deposit interest rates. Improved cash flows will reduce bad debt pressure on banks, especially from the real estate industry.

Meanwhile, SSI Research noted that 2024 continues to be a challenging year for the banking industry in terms of asset quality. However, the overall outlook will be brighter than in 2023 largely because capital costs have fallen to lower levels and pre-provision operating profit (PPOP) has improved, helping lenders with more room to build a better reserve buffer.

Data from SSI Research showed that reserve buffers at most banks are lower than the value of problematic loans. Although SSI Research believed that banks need to set aside more provisions to improve asset quality, the provisioning time may be extended due to the following factors: Bad debt and legal status of unfinished real estate projects and home loan risks in projects with legal problems.

“We retain a neutral stance on the banking industry in 2024 because the process of consolidating provision buffers continues, preventing the sector’s profit from accelerating strongly immediately. However, we still prefer banks with good asset quality because they will complete bad debt settlement much sooner than their peers,” SSI Research emphasized.

Source: Vietnam Business Forum