SECTOR UPDATE – BANKING

BANKING SECTOR VALUATION HAS DROPPED TO AN ATTRACTIVE LEVEL

We have a positive outlook for the banking sector thanks to attractive valuations and high profit growth expectations in the second half of 2022 from the core business growth and stable asset quality.

News and highlights

• SBV maintains its credit growth orientation for the whole year at 14%. YTD credit growth is 9.4%, with many banks reaching their currently allocated quotas, indicating that the SBV will need to lift quotas in the coming months to reach whole year expectations.

• Deposit rates have increased by around 0.5% in the first half of 2022 and we forecast another 0.5% increase in the second half of 2022.

• System liquidity fluctuated strongly in July and August due to stagnant money at banks and the SBV continuously intervening to control VND interbank interest rates and exchange rates in interbank market.

• The Government is still continuing to seek opinions to amend Decree 153/2020, making it difficult for real estate businesses to issue corporate bonds.

Summary of Q2/22 business results

• PBT in Q2/22 of banks listed on HOSE grew by 37.4% y/y.

• Asset quality slightly improved. In which, NPL ratio and group 2 loan ratio remained low and was flat q/q. COVID-19 restructured loans continued its downward trend and accounted for only 0.7% of total outstanding loans.

• Net interest income and non-interest income both grew well in Q2/22, reaching 16.0% and 17.5% YoY respectively.

Outlook for the last 6 months of 2022

• New credit growth quota is expected to be approved by SBV at the end of Q3/22. Banks taking over weak banks, including VCB, MBB, VPB and HDB may be granted higher credit quota than the industry average.

• NIM will remain stable or improve slightly, although deposit rates may increase by 0.5% in the second half of 2022.

• A thick provision buffer and good asset quality will reduce the pressure of banks’ provisioning. We see that NPL risk in real estate sector is not a concern at the moment, although further monitoring is needed as real estate loans account for about 20% of total outstanding loans in the banking sector.

• Profits of banking sector are expected to maintain a strong growth in 2H2022.

Valuation and recommendation

• Valuation of the banking sector has become attractive with P/E and P/B of 9.9x and 1.75x, respectively, 20.4% and 13.1% lower than 5-year average P/E and P/B.

• We have a positive outlook for the banking sector given (1) its attractive valuations and (2) profit growth of the banks in our coverage list are expected to reach 45.2% in 2H2022 and 34.6% for the whole year of 2022