By the end of August, the total loan for the entire economy reached VND11.7 million billion, up 9.91% compared to the beginning of the year. Photo: Transactions at TPBank

According to data released by the State Bank of Vietnam (SBV), by the end of August, the total loan for the entire economy reached VND11.7 million billion, up 9.91% compared to the beginning of the year. As many banks ran up the credit line in the first five months of the year, credit growth in July and August was very low, at 0.07% and 0.5% respectively.

In early September, the SBV decided to expand the credit cap for the banking industry. For state-owned joint stock commercial banks like Agribank (AGR) and Vietcombank (VCB), the credit caps were raised by 3.5% and 2.7% respectively, while the rates for Vietinbank (CTG) and Bank for Investment & Development (BID) gained by a mere 0.7% as their caps at the beginning of 2022 were already high, much better than in previous years. Some private commercial joint stock banks have relatively large credit growth, like HCM Development Bank (HDB, 3.4%), Military Bank (MBB, 3.2%), Saigon Hanoi Bank (SHB, 3.2%), Techcombank (TCB), and Asia Commercial Bank (ACB), Vietnam International Bank (VIB) up 2.7%, Tien Phong Bank (TPB, 1.2%) and Vietnam Prosperity Bank (VPB, 0.7%).

According to KB Securities’ estimation, in the event that banks use up the new room, the credit of the whole banking industry will gain 13.2% YTD. Therefore, the SBV can still loosen the room again from 0.5-1.2% to achieve the full year target of 14%. But it doesn't expect too much of this lift because the SBV is still very consistent with the goal of controlling inflation and exchange rates.

The economy is recovering, and businesses are gradually regaining their repayment ability, helping the average loan yield in 2Q improve by 0.24% QoQ to 8.42%. Low deposit growth and SBV’s continuous net withdrawal of trillions of VND through open market operations and FX sales caused a deep drop in the liquidity of the industry. The race to increase deposit interest rates is inevitable, and in fact, banks have increased deposit interest rates by 0.1-0.7% in the first half of the year. The increase in deposit interest rates also made demand deposits rise 2.1% QoQ, and the CASA ratio of the banking industry remained at 23%.

At the end of 2Q, the non-performing ratio (NPL) of the banking industry increased to 1.5% (0.07% QoQ) as bad debt increased 20.9% QoQ. Most of the listed banks recorded an improvement in their NPL compared to the previous quarter. Big banks with higher bad debt ratios in 2Q were MBB (0.2 pts), BID (0.05 pts) and CTG (0.1 pts), but this ratio was still at a safe level, below 1.5%. Some other joint stock commercial banks saw strong NPL increases are SHB (0.8 pts), Viet Capital Bank (BVB, 0.31 pts), notably, VPB's consolidated bad debt ratio at the end of 2Q was 5.25% due to its focus on the banking sector.

Mr. Tran Duc Anh, Head of Macro & Strategy at KB Securities, said most of the banks KB Securities observed recorded a decrease of 30- 50% in restructured loans after 1H22 along with a good recovery of the economy. The industry’s loan loss coverage ratio (LLCR) remained positive and stable above 146%. VCB holds the top position in provisioning when its LLCR reaches a record of 505%, and CTG and BID are also among the top with ratios of 189.7% and 262.5% respectively. For the group of private joint stock commercial banks, MBB, ACB and TCB are the banks with the highest LLCR ratio.

KB Securities changed its view on banks in 4Q22F from positive to neutral, based on the following main points:

First, the SBV’s room extension in early September should give banks room to grow better in 4Q, not to mention the possibility that the SBV will loosen the room for the second phase in November.

Second, the upward pressure on interest rates will increase by end- year when banks step up to mobilize capital for loans and the SBV has officially raised policy rates by 1% from September 22 and 1% from October 25, 2022.

"We expect short-term deposit rates to gain 0.5-1% in 4Q, while long-term rates may see a higher increase of 1-1.5%. Accordingly, the average deposit interest rate of the whole industry is projected to gain sharply by 1.14pts YTD to 4.56%. Meanwhile, the increase in lending interest rates will slow down in the last months of the year to promote the disbursement of new credit. Banks' shift of loan portfolios to less risky industries will also reduce the average yield. The industry's NIM is therefore expected to be flat or decrease this year", said Mr. Tran Duc Anh.

Third, in terms of asset quality, KB Securities believes that the NPL ratio will gradually decrease in 4Q as better profit growth from the new credit room makes banks more eager to make provision and to accelerate debt settlement (usually in 4Q), which should create room for growth in the following years given a more stable macroeconomic situation.

Fourth, the 10-year government bond interest rate continuously gained 1% in 3Q and peaked at 4.31% in September, so banks will have to reduce the value of their securities portfolios. Income from securities trading will be directly affected by this.

Bank stock prices gained 15-20% in July and August. However, from mid-August to early September, the growth rate slowed down and showed signs of decrease under the impact of the poor macroeconomic data and credit disbursement affected by SBV’s monetary policy and the pressure of raising interest rates. The valuation of the PB of the banking sector is at 1.66x, trading right on -1Std. Meanwhile, the industry's profitability in the first six months reached 19% - 17% and is above the five-year average.

The bank stocks that KB Securities choose are BID, VCB, VPB, MBB, and TCB. For State-owned banks, KB Securities continues to appreciate VCB for its operational safety, and BID for all the necessary factors for outstanding growth this year such as a large credit room, improved CASA via digital transformation (linking bank accounts with chip-based ID card) and promoted retail lending. For private joint stock commercial banks, MBB is one of the top choices thanks to its high credit room, top asset quality, and strong digital transformation. VPB only got a modest room rate of 0.7%, but the plan to sell capital to foreign countries next year is also worth paying attention to. Besides, VPB also has the highest CAR in the industry (12.7%). Investors can also consider TCB as it is the leading bank.

"The main risks for our assessment include: (1) bad debts from real estate businesses increase rapidly when real estate credit is still tightened; (2) deposit rates increased faster than expected; (3) the SBV continued to withdraw money to control inflation and stabilize the exchange rate, creating a bottleneck in credit capital flows", said Mr. Tran Duc Anh.