All three organizations, including MB Securities (MBS), Rong Viet Securities (VDSC) and Maybank Kim Eng Securities (MBKE), assessed that the banking industry in 2020 will still grow positively despite the stricter legal regulations. In particular, the macro picture is very stable to help Vietnamese banks grow interest income as well as fees and maintain asset quality so that they do not have to increase provisioning. MBKE has raised its assessment from neutral to positive for the banking industry in 2020, based on 3 factors: The regulations of the State Bank; Profitability on assets and Valuation.
MBKE reviews the regulations of the State Bank on regulating the banking industry to continue maintaining the state of supporting the growth and maintaining profitability.
Currently, regulations of the banking industry are being implemented and implemented in a very reasonable manner, such as regulations on capital adequacy or provisions on provisioning.
Thanks to moderate and not tightening regulations, banks continue to maintain asset leverage on capital at 10 -12 times instead of falling to below 10 times as regional banks. Therefore, banks are in a cycle of good profitability.
MBKE assesses that the macro picture is very stable to help Vietnamese banks increase interest and fee income and maintain asset quality so that they do not have to increase the provision.
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Specifically, thanks to the stable macro picture, thanks to the current credit / GDP ratio under the new calculation method is not too stressful (the credit / GDP ratio in 2019 is over 130%. However, the adjustment of GDP calculation method in 2020 increases the scale of GDP, helping the credit / GDP ratio fall to below 130%). Therefore, the banking industry will continue to maintain the credit growth of the whole industry at 13% - 14%, leading banks will be about 15% - 16%.
Especially, the profitability of the bank was improved thanks to non-interest expenses, the increase from insurance sales, which helped the bank improve its ROA to 1.8% - 2%. Thanks to reasonable financial leverage of 10 - 12 times, the profitability of ROE is very good at 18% - 20%.
According to MBKE, valuations of Vietnamese banks are very attractive with a P / B of about 1 time for many leading banks and profitability of 18-20%.
Despite the good profitability, the current valuation of Vietnamese banks is still very attractive at only 0.9 - 1 P / B for many leading banks. One factor that makes the valuation of Vietnamese banks unimproved is that of foreign ownership limits. MBKE expects the financial index fund initiatives Diamond or the index fund, which track the full-room stocks and have attractive pricing and are factors that help valuate the stocks, especially the bank stocks, to be improved in 2020.
VDSC's analysis team estimates that the new policies of the State Bank will have different effects on the business results of each banking group. In particular, state-owned banks are more likely to face difficulties in expanding their net profit margin; The impact on private banks is multidimensional and has a lesser effect.
However, VDSC also sees an opportunity for all banks when credit growth is maintained positively because lending is still the main source of income for banks and credit expansion will allow banks to cross-sell their products (cards, payments, insurance, bond services ...), thereby boosting service income.
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"By 2020, credit growth will be similar to 2019, the net profit margin will continue to expand selectively and provision expenses will be further reduced in some banks. Accordingly, VDSC banks are likely to achieve core profit growth of at least 15% in 2020. VDSC sees low valuations (estimated PB of 2020 from 0.9 to 1.2 times) and high profitability (expected ROE of 2020 by 20-24%) as the advantage of many bank stocks.” The report on investment strategy 2020 stated.
MBS assesses the need for capital in 2020 to be deficient in each banking group. Specifically, according to Fitch's assessment, the Basel II standard will increase risky assets by 60% compared to 2017, totaling VND 463 trillion for the whole system. Also, the system will be in shortage of Tier 1 capital, mainly taking place in unlisted banks.
However, MBS assessed the liquidity of the banking market thanks to (1) the increasing FDI inflow into Vietnam; (2) the fact that there are no sudden capital withdrawal thanks to factors such as the capital flowing from China, or Vietnam being the leading destinations. MBS forecasts that the system's liquidity will continue to be abundant and not put any pressure from outside on interest rates.
However, like VDSC, MBS stated that NIM growth of banks is gradually slowing down due to the increasing interest rate level (The requirements of the State Bank to replace Circular 36 especially for the short-term mobilization ratio of short-term loans will be tightened, which will raise mobilization costs higher in 2019-2020). The competition is increasingly fierce in consumer lending, government bond interest rates continue to fall and banks will be heading towards safer loans (lower interest rates) to meet Basel II standards.
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