What bank stocks will be on the radar?

VCB is one of top picks for the banking sector as recommded by VNDirect

Performance of listed banks

3Q21 aggregate net interest income (NII) of 17 listed banks rose 20% YoY on a 17.6% YoY loan book growth and a flat YoY average net interest margin (NIM) of 3.8%. Total non-interest income (Non-II) grew only 7.2% YoY as total net fee income (NFI) fell 1% YoY. On the cost side, the average cost-income ratio (CIR) reduced to 36.1% in 3Q21 from 40.1% in 3Q20, while provision expense rose 30.9% YoY. Hence, net profit increased 17.9% YoY in 3Q21, lower than that of 36.2% YoY in 2Q21.

For 9M21, total earnings of 17 listed banks, of which total loan book made up 65.3% system credit at end-3Q21 jumped 42.6% YoY, higher than the growth rate of 11.9% YoY in 9M20. Better topline growth and lower CIR helped offset the increase in provision expense growth across banks. Earnings of 3 Stated-owned commercial banks which accounted for 33.5% of aggregate earnings rose 31.5% YoY in 9M21, higher than the growth rate of 0.7% in 9M20.

Due to the Covid-19 impact, most of the Vietnamese banks focused on controlling their operating expenses, which helped lower their cost-income ratio (CIR) and improve their pre-provision profits (PPOP) growth in 9M21. VNDirect expects 2021-22F banks CIR to maintain at 9M21 level.

“We believe NIM improvement to a slowdown in 2H21 and even to shrink into FY22F as commercial banks have been strictly required to lower their lending rates to support for clients. On the other hand, we saw asset quality deteriorate slightly with the average NPL increasing to 1.64% at end-3Q21 from the levels of 1.49% at end-2Q21. Additionally, system restructured loans widened to VND250tn (2.5% system credit) at end-Nov from VND227tn at end-Aug, according to SBV. Thus banks have to rebalance the dynamics between earnings growth and asset quality amid softer NIM and growing risk appetite. Overall, we expect banks under our coverage to deliver 25.2% YoY and 18.8% YoY earnings growths for FY21F and FY22F, respectively”, VNDirect said.

Best bank stocks to watch

VNDirect expects the Vietnamese economy to gather pace in 2022 driven by robust export growth, demand recovery, and fiscal policies support. And, banking would be the best proxy to Vietnam's economic resurgence. Additionally, in terms of money flow analysis, market liquidity has been increasing stably since the beginning of this year amid a low deposit rate environment. This trend will extend further, even into 2022; followed by the increasing numbers of new individual accounts that were opened in the past 2 months. Accounting for a quarter of market capitalization, the banking sector is one of the biggest beneficiaries to ride on the retail investor rally.

Anticipating the slowdown in earnings growth across the banking sector in the next couple of quarters, VNDirect prefers banks with the following characteristics:

First, amid the weak credit growth recovery, this stock company prefers banks that are capable to expand lending activities, or well-equipped to enhance the weight of non-interest incomes (through bancassurance, investment banking service, foreign exchange trading…). 

Second, amid the less intense deposit competition and ample liquidity, VNDirect prefers banks that have opportunities to increase their exposures to individual lending which will enjoy better asset yield.

Third, banks' bad debts could go up in a couple of quarters, VNDirect prefers banks that have solid asset quality and strong provisioning buffer.

“Basing on the above characteristics, VCB, TCB and ACB are our top picks for the banking sector”, VNDirect said.