Banking stocks remain attractive: broker

Banking stocks are expected to be in a rising wave and lead the market in the second half of this year, said Nguyen Anh Khoa, head of investing at Agribank Securities (Agriseco).

Will Vietnam’s credit reach 15% this year as expected by the banking industry?

According to the State Bank of Vietnam (SBV), credit growth hit 0.98% in the first quarter of 2024, reflecting the difficulties facing businesses and individuals. As of June 14, it had reached 3.79% with an average growth rate of nearly 1% per month. Thus, credit in the last months of this year will have more room for expansion (more than 10%).

Credit growth in 2024 will depend on many factors, with the most important being the recovery of the economy and the effectiveness of the SBV's support solutions.

I expect credit disbursement to recover significantly in the last two quarters thanks to growing credit demand in the retail segment amid signs of macroeconomic improvement, the promotion of credit into priority industries, and support packages under government programs.

In addition, lending interest rates in the coming months will remain low, thereby stimulating credit demand in the real estate sector.

Furthermore, three new laws related to land, housing and real estate business, which were passed by the National Assembly on June 19, 2024 and are expected to take effect from August 1, 2024, would boost credit into the property industry in the second half of 2024.

The central bank’s Circular 02/2023 has been extended until the end of 2024 and draft amendments to Circular 16/2021 are aimed at supporting credit institutions to provide more credit.

However, achieving the credit growth target of 15% this year will be a challenge.

How do you evaluate and forecast the banking industry's profits this year?

The banking industry's profits in 2024 will continue to maintain growth momentum, but the speed will slow down compared to the previous period. The decline of this group’s growth momentum will largely come from the slow recovery of net interest margin (NIM).

However, a number of factors that can support the banking group are the possibility of credit room expansion at the end of the year for some banks to ensure high capital adequacy ratios (CAR), good asset quality, and healthy loan portfolio structure; the restructuring of weak banks; and accelerated capital raising plans. In addition, revenue sources, including net interest and non-interest income, will grow again in the last quarters of the year.

Will banking stocks return to lead the market in the second half of the year?

Vietnam's stock market in H2/2024 is forecast to witness many fluctuations, but profit growth is still expected as the macro economy continues to show signs of a positive recovery. I think the stock groups that will benefit from the economic recovery and public investment policies with long-term growth trends like banking can lead the market in the second half.

Although 2024 may not be a year of high profit growth for the banking group, its valuation is quite low with P/B (price-to-book) ratio at 1.5x. In the long term, banking stocks will remain an attractive investment opportunity thanks to the strong digital transformation process in the banking system.

Many banks are gradually forming a comprehensive financial ecosystem including banking, securities and insurance. Furthermore, the scale and financial capacity of banks are also being boosted thanks to accumulated profits and the process of increasing capital via issuing shares to strategic partners.

Some argue that a high CASA (current account savings account) ratio is an indicator of attractive banking stocks. Do you think so? Which banks currently have good CASA ratios?

The CASA ratio is an important indicator to evaluate the financial health and operational efficiency of a bank, as well as competitiveness between banks. Banks with high CASA ratios will have more room for profit growth by taking advantage of potential competitive advantages.

Firstly, a high CASA ratio means a source of cheap capital. Normally, interest rates on demand deposits at banks are at low levels, resulting in low capital costs, and thereby increasing profits. This is also an important indicator in assessing a bank's NIM trend.

Secondly, a high CASA ratio demonstrates a bank’s ability to attract and retain good customers, thus enhancing its reputation and brand in the market, and creates a competitive advantage over other banks in raising capital and delivering products and services. This gives banks abundant liquidity and ensure good solvency. By the end of March, Techcombank had the highest CASA ratio of 40.5%, followed by MBBank (36.1%), Vietcombank (33.2%), and Maritime Bank (29.2%).

In addition, CASA is forecast to experience strong growth in the future when the room for CASA expansion in the entire industry is very large. By the end of March, the system-wide CASA ratio reached about 20%, much lower than Singapore (52.1%), Thailand (35.2%) and Indonesia (27.5%), according to Bloomberg.

However, to comprehensively evaluate a bank’s operation efficiency, in addition to good cost management and healthy finances, investors should combine the CASA ratio with the capital adequacy ratio (CAR), the loan-to-deposit ratio (LDR), and the ratio of short-term funds used for medium- and long-term loans to make reasonable assessments and find good and attractive investment opportunities.

Currently, the P/B of many banks is below 2x, even below 1.5x in some lenders. Do you think the low valuation will support banking stocks?

After creating their bottom in November 2023, banking stocks increased by about 26% in the following three months and have been in a correction period since the beginning of February 2024 in the context of macroeconomic fluctuations and escalating exchange rate pressure.

From the peak set in early 2024, banking tickers have dropped 15%. The strong gain in the first quarter of 2024 brought the industry’s P/B level back to 1.5x, lower than the average level of the last five years (1.8x).

Therefore, banking stocks are still in an attractive price range for medium- and long-term investments. Lenders with higher credit room than the industry’s average, sustainable growth, good capital safety buffers and good asset quality will have better prospects and vice versa. Besides, plans to increase capital at the end of the year will also boost banking stock prices.