Sector Update – Banking

A SLOWER PROFIT GROWTH IS EXPECTED

News and highlights

• System liquidity was stressed at the beginning of Q4/22 but has gradually improved and started to become redundant. Customer deposit rates and interbank rates decreased due to abundant liquidity and reducing pressure from USD.
• Corporate bond market is still congested and there is no breakthrough solution yet. Some real estate and renewable energy businesses were late to pay bond interest in Q4/22 and Q1/23.
• The Government held many meetings with real estate companies to propose solutions such as debt restructuring and solving project’s legal issues. 

Summary of Q4/22 business results

• Profit before tax of banks in VN-Index in Q4/22 increased by 17.1% y/y but decreased by 11.7% q/q. 
• Net interest income grew 25.9% y/y and slightly 1.5% q/q thanks to full year credit growth of 14.2% y/y and a slight decrease in NIM.
• Non-interest income in Q4/22 grew by 17.4% y/y but decreased by 15.2% q/q due to negative impacts from stock and corporate bond market.
• Provision expenses increased by 4.3% y/y and 12.4% q/q. NPLs increased sharply in Q4/22 but the thick provision buffer helped asset quality deteriorate only slightly in Q4/22. COVID-19 restructured loans no longer accounted for a significant proportion.

Outlook for Q4/22 and 2023

• Income from credit activities will continue to be the main pillar in the context of non-interest income facing difficulties.
• Provision expense is forecast to increase by 38% due to the increased risk of NPLs arising, especially from real estate businesses. Although the reserve buffer is still quite thick, it has become thinner after Q4/22 as banks use the reserve fund to write off bad debts.
• Profit of banks in VN-Index is forecasted to grow by 10% in 2023, slower than the growth rate of 34.6% in 2022.

Valuation and recommendation

• Banking stock price has recovered 24% since the bottom in November 2022 and is currently trading at P/E of 8.1x and P/B of 1.5x, 32.1% and 16.4% lower than the 10-year historical average, respectively. 
• Although banking profits are forecasted to slow down in 2023, with valuations still in attractive territory, banking stocks are still good investment opportunities for long-term investors. Short-term investors can take advantage of market corrections to accumulate bank stocks.

View details in the attachment below.