Banking sector 2026F – Growth slows down

Q1/26 earnings of the banking sector remained resilient despite macro volatility. Specifically:
– Q1/26 PBT of 27 listed banks grew 14.2% y/y and declined 3.1% q/q. Banks under our coverage delivered stronger growth of 24.9% y/y, supported by solid earnings from CTG and VPB. Overall, banks posting impressive Q1/26 earnings included state-owned banks (VCB and CTG) and banks receiving higher credit growth quotas (MBB, VPB and HDB) due to restructuring weak banks.
– Credit growth remained relatively strong at +19% y/y and +3.5% YTD, despite tighter credit quotas and rising lending rates for new loans. NIM declined 22 bps y/y and 16 bps q/q as lending yields were still affected by preferential-rate loans originated in 2024-25, while deposit rates increased sharply. NIM compression led banks to continue tightly controlling operating expenses, with the CIR ratio maintaining its downward trend to only 29.8%.
– Asset quality deteriorated slightly. The overdue loan formation ratio in Q1/26 stood at 1% of total loans, causing the NPL ratio to rise 15 bps q/q to 2.0%, while the special mentioned loans ratio also edged up 8 bps to 1.23%. Credit cost was maintained at 0.27% in Q1/26, while the loan loss coverage ratio remained stable at 80%.
– For full-year 2026, excluding STB due to potential extraordinary profits, we forecast PBT growth of 18.7% y/y for banks under our coverage, slowing from 22% y/y growth in 2025 and lower than the 24.9% growth recorded in Q1/26, as banks may find it difficult to record extraordinary gains from off-balance-sheet debt recoveries as seen in Q4/25.
The banking sector is currently trading at 10.9x P/E, around 10% below its historical median. With earnings growth prospects remaining relatively solid, we believe current valuations are attractive for medium- and long-term investment in banking stocks. We prefer VCB, CTG and MBB thanks to (1) attractive valuations and (2) resilient earnings performance supported by funding advantages amid macro and system liquidity challenges.