According to VNDIRECT, banks will boost credit growth in the second half of 2020, so some bank stocks will return to attract cash flow.
Credit accelerates in the second half of 2020
The outbreak of Covid-19 has affected many sectors, including agriculture, services, import and export, tourism, hotels, education, transportation and retail. This has slowed down credit growth, with industry-wide credit growth of 1.3 percent at the end of Q1/2020, the lowest in the past six years. Entering the beginning of the second quarter, credit growth continued to slow down with a negative growth of 0.5 percent at the first half of April. So, from the beginning of the year to the middle of April, the credit increased by 0.8%.
However, VNDIRECT experts forecast that the Covid-19 pandemic will end in the second quarter of 2020, so credit growth will increase in the second half of 2020. Therefore, credit growth may reach 11 percent in 2020, lower than the 13.6 percent growth of 2019.
Post-pandemic credit growth will be supported by the following factors: Firstly, the reduction of interest rates and ceiling rates is lower than that of input costs, enabling banks to lower lending rates. Specifically, in March 2020, the State Bank of Vietnam (SBV) lowered a range of interest rates from 50 to 100 basis points. By April 2020, 20 banks (accounting for 75 percent of the system-wide credit) have raised the size of low-interest credit packages, which are set up to support customers affected by the pandemic. The rate fall encourages businesses to push up new loans to continue their business activities.
Secondly, promoting public investment will create jobs, thereby creating demand for credit, and partly supporting credit growth. On March 20, 2020, the government agreed to convert all investment projects (eight projects) related to the North-South Expressway from public-private partnership (PPP) to public investment, proposed to the National Assembly for permission to begin construction in August 2020. Accordingly, the construction of the Ben Thanh An Suong metro line is expected to resume operation in October 2020.
After the interest rates and ceiling rates were cut, banks’ deposit rates fell by 20-40 basis points, while banks cut their average lending rates by around 100 basic points to support customers. Therefore, VNDIRECT said that the net interest margin (NIM) of credit institutions in 2020 will decrease on a large scale due to lower lending rates for new loans and exemption/reduction of interest rates for existing ones. After the pandemic, VNDIRECT expects that VCB, ACB and MBB will improve NIM thanks to its ability to shift to lending to higher-yielding segments (VCB, MBB) or improve CASA ratio (ACB).
Investor’s anxiety about the influence of Covid-19 caused the stock market to plummet. Accordingly, the share prices of many banks have decreased by an average of 18.4 percent since the end of 2019. Shares of Vietnamese banks are trading below the average Price-to-Book (P/B) ratio and Price-to-Earnings (P/E) ratio of five years and equally valued at shares of regional banks, although Vietnamese banks have higher Earnings per share (EPS) and Return on earnings (ROE) growth.
In 2021, when the credit bounces back, the banks’ income will be improved. Furthermore, along good provisions will help banks handle newly formed bad debts. Therefore, VNDIRECT forecasts that profit growth of banks in 2021 will be much higher than in 2020, but the level of recovery will vary between banks. According to VNDIRECT experts, the shares of VCB, ACB, and MBB will be the first choice of investors due to the prospect of better recovery.
