According to Fiinpro, in the first six months (H1) of 2020, the banking sector has completed 52.5 percent of the profit plan in 2020, with the lead of Vietnam Prosperity Commercial Joint Stock Bak (VPB, 64.4%), Lien Viet Post Commercial Joint Stock Bank (LienVietPostBank, 59.3%) and Saigon Thuong Tin Commercial Joint Stock Bank (STB, 54.9%).
In addition, except for Commercial Joint Stock Bank for Industry and Trade of Vietnam (CTG), Commercial Joint Stock Bank for Foreign Trade of Vietnam (VCB), and National Citizen Commercial Joint Stock Bank (NVB) which did not set a pre-tax profit target and Kien Long Commercial Joint Stock Bank (KLB) which set an overly high pre-tax profit target (nine times higher than 2019), in H1 2020, the remaining banks have all completed around 50 percent of their profit targets.
In the second quarter (Q2) of 2020, some banks recorded more than 20 percent growth in after-tax profit, including VPB (44%), HCM City Development Commercial Joint Stock Bank (HDB, 38.5%), CTG (37.7%), Tien Phong Commercial Joint Stock Bank (TPB, 33.5%), Vietnam International Commercial Joint Stock Bank (VIB, 26.8%), etc.
It should also be noted that Circular 01 of the State Bank of Vietnam (SBV) allows banks to restructure the debts which are affected by the Covid-19 epidemic. Thus, those debts are still recorded as “qualified debts” and no provision is required. Therefore, when this policy changes, the impact of Covid-19 epidemic on banks’ credit quality and completion of profit targets in 2020 will be seen more clearly.
The banking sector this year aims to expand pre-tax profit by 4.9 percent compared to 2019, but this plan has not fully quantified the challenges that Covid-19 brings.
Vietcombank Securities Company has built two scenarios for the banking sector, including a less positive scenario (assuming that the debts of customers directly hit by Covid-19 are restructured and do not affect the provisions in 2020) and very bad scenario (assuming that by the end of the year, about one percent of the outstanding loans of customers who are not entitled for debt restructuring are moved from the debt group 1 to group 2).
In the first scenario, the pre-tax profit in the whole year may be 7.3 percent less than the profit attained without the happening of the disease, equivalent to about five percent less than last year. In particular, the fee and interest exemption/ reduction respectively lowers the pre-tax profit by 1.7 percent and 1.1%, and operational interruptions and other impacts lead to a profit decline of at least 4.5%.
For the very bad scenario, the pre-tax profit of the banking sector may fall by at least 17.4 percent compared to the profit attained without the happening of the disease, equivalent to about seven percent less than 2019.
In particular, the group of large-scaled banks such as Commercial Joint Stock Bank for Agriculture and Rural Development of Vietnam (AGR), VCB, CTG and Commercial Joint Stock Bank for Investment and Development of Vietnam (BID) are under the pressure of profit decrease due to the need to pioneer to devote resources to support customers affected by the Covid-19 epidemic.
On the positive side, this is the time for banks to apply digital technologies, creating convenience for banking service users instead of using a traditional transaction model.
The influence of the epidemic on banks mainly lies in the impacts of the epidemic on banks’ customers, including two main subjects: businesses and consumers.
Opening opportunities to invest in bank stocks
In addition to Price to Earnings Ratio (P/E), P/B is an important indicator to evaluate investment attractiveness.
With a large capitalisation proportion, bank stocks are leading and influencing stocks in the market. In the context when the P/B of the group is on a downtrend, the investment opportunities seem to be opening up. Except for the P/B of VCB which is currently 3.2 times, and of BID which is 1.9 times, most the P/B of bank stocks is around one time.
VNDIRECT Securities Company said that investors are holding a cautious view on the banking and financial stocks in the face of unpredictable developments of the epidemic.
The outbreak of Covid-19 epidemic has affected many economic sectors, disrupted business and production activities of businesses, leading to a decline in credit demand and Net Interest Margin (NIM).
However, on the positive side, in the banking sector, some subjects have prepared in advance, such as actively setting up provisions (increasing the bad debt coverage ratio), or well controlling operating costs thanks to the promotion of digitisation.
In fact, the average bad debt coverage ratio of listed banks increased from 90.7 percent in the end of 2019 to 92.6 percent in the end of Q2 2020. At the present time, VNDIRECT said that it is necessary to closely monitor bad debts. If the bad debts increase quickly, that will widely affect the economy and negatively affect banks’ profit for many years. However, investors can consider some bank stocks with cheap valuation but good asset quality, or their own stories, etc. for making investment decisions at this time.
One of the recommended shares is MBB shares of Military Commercial Joint Stock Bank (MBB). This code is trading at 17,000 dong per share, but according to VNDIRECT, its targeted price in 2020 is 26,200 dong per share based on Residual Income Valuation Model (RIM) (capital cost of 14.3%, long-term growth of three percent), and targeted P/B in 2020 is 1.2 times.
ACB shares of Asia Commercial Joint Stock Bank (ACB) is another recommended stock code, which has a targeted price in 2020 of 28,500 dong per share based on RIM (capital cost of 14.3%, long-term growth of three percent), and targeted P/B in 2020 is 1.3 times.
Similarly, TCB shares of Vietnam Technological and Commercial Joint Stock Bank (TCB) are valuated at 27,400 dong per share based on RIM (capital cost of 17.3%, long-term growth of four percent), and targeted P/B in 2020 is 1.2 times.
From an optimistic perspective, VNDIRECT said that banks may achieve a credit growth of nine to 10 percent in 2020, on the basis of increasing capital demand towards the end of the year.
Government policies to support the economy such as delaying tax payment deadlines, requiring banks to lower interest rates for businesses affected by the epidemic, etc. may help credit growth flourish.
In addition, the promotion of public investment will contribute to boosting the demand for credit in the last months of the year, but the NIM of banks will continue to be under a downward pressure.
