Shares of four Vietnamese banks may rise 14-68 per cent in 12 months, according to JP Morgan’s Asia Pacific Equity Research.
The New York-based financial institution said in its research that the Vietnamese banks “offered an increasingly rare combination of high and self-sustaining earnings growth.”
“This, with a favourable credit cycle, should lead to significant multi-year returns,” the US bank reported early this month.
In addition, high visibility on nominal gross domestic product (GDP) and current account surplus allows “extrapolation of strong earnings and credit growth in Vietnam.”
JP Morgan rated shares of the Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank), the Vietnam Technological and Commercial Joint Stock bank (Techcombank) and the Asia Commercial Joint Stock Bank (ACB) at over weight and the Vietnam Prosperity Joint Stock Commercial Bank (VPBank) at neutral.
The banks under JP Morgan’s coverage are expected to deliver 15-21 per cent return-on-equity (RoE) ratios in the next two years as “they have started making money on both sides of the balance sheet.”
JP Morgan also highlighted favourable cyclical positioning as a defining feature of the Vietnamese banking system, which managed asset quality problems well in 2012-13.
It spoke highly of the creation of the Vietnam Asset Management Company (VAMC), which “provided a five-year timeline to write off bad debt” and allowed banks to grow sustainably through being funded against VAMC bonds.
Vietcombank, Techcombank, ACB and VPBank were forecast to record a 12 per cent earnings compound annual growth rate (CAGR) for 2019-21 on the back of a 16 per cent loan CAGR and a 6-13 basis point net interest margin (NIM) compression, as competition in retail loans should crimp yields.
JP Morgan warned the four banks’ stock of capital would appear low at a 12.2 per cent capital adequacy ratio (CAR) as they were “transitioning from Basel 1 to Basel 2.”
Meanwhile, high RoE, limited dividend payout rates of 0-17 per cent and reasonable risk-weighted asset growth of 13-19 per cent would ensure capital needs are met.
In addition, credit penetration at 104 per cent of the revised GDP is high, according to JP Morgan, due to “leverage build-up at State-linked companies with low capital efficiency” and a higher consumer leverage that would limit growth and lead to non-performing loans (NPLs).
Other risks JP Morgan pointed out include Moody’s placing 17 banks under review for a possible credit rating downgrade due to delayed government payments, the foreign exchange depreciation lowering USD returns for investors, and the US Treasury’s watch over Vietnam for possible status as a currency manipulator.
