Banking – Rebalancing growth and asset quality – Sector note

• We believe banks would have to rebalance the risk dynamics between earnings growth and asset quality into FY22F
• However, banking is still the best proxy to Vietnam economic resurgence post pandemic and currently are traded at attractive valuation.
• Our stock picks for the sector include VCB, TCB, and ACB.

Credit growth likely to accelerate in the next couple of quarters
Industry credit rose to 10.1% ytd as of 25 Nov from 8.7% ytd as of 29 Oct or from the level of 7.9% ytd at end-9M21, and much higher than that of 8.4% ytd in 11M20. We expect industry credit to grow 12% yoy in 2021F and resurge to 13-14% level in 2022F driven by (1) strong rebound in manufacturing and trading activities with the increase in external and domestic demand; (2) low lending rates to trigger borrowing demand for house buyers; and (3) higher public investment disbursement rate.

Rebalancing earnings growth and asset quality into FY22F
We estimate that annualised NIM of listed banks to inch up 34bp yoy to average 4.0% in 9M21. However, we believe NIM improvement to slowdown in 2H21 and even to shrink into FY22F as commercial banks have been strictly required to lower their lending rates to support clients. On the other hand, we saw asset quality to deteriorate slightly with average NPL increasing to 1.64% at end-3Q21 from the levels of 1.49% at end-2Q21. Additionally, system restructured loans widened to VND250tn (2.5% system credit) at end-Nov from VND227tn at end-Aug, according to SBV. Thus banks have to rebalance the dynamics between earnings growth and asset quality amid softer NIM and growing risk appetite. Overall, we expect banks under our coverage to deliver 27% yoy and 21% yoy earnings growths for FY21F and FY22F, respectively.

We believe a stronger economy in 2022F bodes well for the banks
We expect economy to gather pace in 2022 driven by robust export growth, demand recovery and fiscal policies support. And, banking would be the best proxy to Vietnam economic resurgence. We like banks that have built up enough provisioning coverage for their loans-at risk and are well-equipped to weather the NIM compression (less exposure to interest incomes, better cost of fund). Our stock picks for the sector include VCB, TCB and ACB.

Investment risks include another new variant arising might hinder the back-to-normal of economy; higher-than-expected inflation to hinder the lending expansion.
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