CAMEL Analysis_4Q20_Strong Asset Quality Will Pay Off in 2021

What’s new?

• 4Q20 PATMI of the 21 listed banks: VND32 tn (+27% QoQ/+28% YoY).
• 4Q20 net interest income was VND78 tn (+14% QoQ/+22% YoY).
• Total 4Q20 credit cost was VND25 tn (+6% QoQ/+44% YoY).
• LLR ratio: 105% (+17ppt YoY). NPL ratio: 1.38% (-7bps YoY)

Our view

• 4Q20 results were driven by high yearend credit growth. Credit growth should increase higher in 2021 on loose policy and economic recovery.
• We expect NPLs to increase in 2021 and recommend to continue focusing on banks with strong asset quality and high provisioning coverage.

Strong asset quality will pay off in 2021

Unsurprisingly, VCB (BUY) remains our No. 1 CAMEL-ranked bank. VCB’s asset quality ranks No.1 due to its sector-high loan loss reserve (LLR) ratio of 370% (+155ppt QoQ/+188ppt YoY). This reflects VCB’s prudent and proactive approach against underlying asset quality deterioration amid the macro shock created by COVID-19. However, this also implies potential earnings by reducing provisions without asset quality. TCB (Not Rated), ACB (BUY), and MBB (BUY) round out our top four CAMEL-ranked banks once again.

4Q20 earnings boosted by higher net interest income, fee income. Accelerated yearend credit growth boosted interest income in 4Q20.  

Banks strengthened asset quality by increasing provisions in 4Q20. Sector loan loss reserve (LLR) ratio was 105% (+17ppt YoY). Aggregated LLR jumped by +27% YoY in 2020, while NPLs increased by only 7% YoY.

Investors should continue to focus on quality banks with high LLR ratios such as VCB, MBB, and ACB. VCB remains the top-quality bank and its valuation premium is justified in our view.

ACB is another high-quality bank with short-term catalysts ahead as outlined in our August initiation titled Safe haven in the storm. We expect ACB to be included in the VN30, VNDiamond, and VNFinlead indexes in mid-2021.

We recently downgraded STB to HOLD-Underperform. We continue to see STB as a turnaround story for the long haul; however, the market may have gotten unsustainably excited by M&A chatter, and we can’t recommend chasing the stock at these levels.

For the complete report, please access here: Banks_CAMEL_4Q20_Updated_2021E Outlook

Analyst: Tanh Tran, tanh.tran@yuanta.com.vn