Stocks of Asia Commercial Joint Stock Bank (ACB), Military Commercial Joint Stock Bank (MBBank) and Commercial Joint Stock Bank for Foreign Trade of Vietnam (VCB) are assessed as having potential when the operations of these banks is only negatively affected at a small level by the disease.
The analysis group of VNDIRECT Securities Company estimated that from the end of last year until now, the worries about the influence of Covid-19 made the prices of banks stocks to fall by about 18.4%. banks on the watchlist of VNDIRECT are trading at Price to Book ratio (P/B) and Price to Earnings ratio (P/E) lower than the average in five years. This valuation is equivalent to regional banks but the Earning per share (EPS) and Return on Equity (ROE) prospect of Vietnamese banks is higher.
The banking industry is clearly differentiating in size, network, asset quality, market share, etc. between the top 10 banks and the lower group. The recovery speed depends on the business strategy, and the risk appetite is thus also different, although the general scenario is that the disease will end in June 2020 and the profits will increase again thanks to the improvement of credit, income from service fees, and the strict control of bad debts.
Based on the prospects of recovery, VNDIRECT’s analysis team proposed three potential stocks with a common point of being slightly affected by the Covid-19 pandemic.
VNDIRECT analysts assessed that ACB’s credit growth will slow down, and its Net Interest Margin (NIM) also fluctuated sharply as interest rates are lowered and interest rates are waived. However, since 60 percent of ACB’s outstanding loans come from individual customers, the pressure on NIM is less than banks that focus on corporate loans. ACB’s outstanding loans in risky areas are also fairly low (6.3 percent in construction and real estate sectors, 24.1 percent in personal home loans, etc.). Diversified customer base helps ACB disperse risks, and limit the impact of the disease on bad debts.
ACB’s analysts forecasted that ACB will recover quickly after the pandemic thanks to the good asset quality, the low risk appetite, the ability to sign exclusive insurance distribution cooperation to increase income with the aim of expanding customer base in order to improve demand deposits.
In contrast, the bank’s credit growth may recover slower than other banks because individual customers are more cautious in borrowing new loans immediately after the pandemic.
For MBB, the credit growth and NIM will decline but the ratio of lending to deposits will be lower than other banks. MBB’s bad debts may rise and lending expenses may increase faster than its rivals due to consumer finance activities. However, analysts assessed that MBB has sufficient resources to provision for new bad debts.
The bank’s advantage is its credit relation and mobilisation with companies and employees of Viettel Group. This is a group of businesses operating in areas less affected by the disease (telecommunications, post, television, freight, etc.) so the risk is somewhat limited.
MBB’s recovery possibility after the disease is at a fairly good level thanks to the expansion of retail lending and consumer finance to improve NIM, the good increase of service fess thanks to insurance, card and digital banking activities. The current provisions and income will help the bank consolidate its resources to handle bad debts.
Regarding VCB, Vietcombank said that the credit packages to support customers and the interest rate exemption and reduction will lower the bank’s profit by 2.240 trillion dong, equivalent to 9.7 percent of last year’s pre-tax profit. PetroVietnam and Vietnam Airlines are facing financial difficulties but they play an important role in the economy. This is the basis for the analysis team to believe that the two businesses will be offered principal restructuring and interest rate exemption and reduction at credit institutions, including Vietcombank. As a major creditor, the bank will be greatly affected.
The analysis team forecasted that Vietcombank will recover the fastest thanks to four factors. Firstly, since the bank’s penetration rate in the retail segment is low, there is plenty of room to develop this segment in order to improve NIM.
Secondly, the extraordinary income from exclusive insurance distribution contracts and the new source of income from insurance commissions will boost profit.
Thirdly, the bank’s customer base which includes many large enterprises will help its credit growth recover faster.
Lastly, the prudent policies will help the bank minimise the risk of bad debts.
In addition, Vietcombank had more than 100 trillion dong of government bonds at the end of the year. This asset can be sold or used to borrow cheap loans from the SBV to pay depositors when necessary.
