Bank Sector and Yuanta Coverage Universe_Update

We think the SBV still has room for another rate cut to stimulate the economy given low CPI (average CPI was 3.12% in 7M23 versus the government’s full-year target of 4.50%).

Marginal NIM impact from policy. Lower policy rates should reduce funding costs, and falling term deposit rates should also help to boost CASA ratios. However, the banks are also under pressure to cut lending rates. Thus, the policy response to slow 1H23 GDP growth is likely to result in marginally lower NIM for the sector in 2H23 and beyond.

We expect fee income to improve in 2H23 along with the expected recovery of credit growth. However, bancassurance – a key fee income driver in recent years – may take longer to recover given the difficulties of rebuilding public trust after a series of mis-selling allegations. Having said that, the long-term outlook for life insurance remains attractive given low penetration and rising middle class wealth.

Asset quality is under pressure amid the real estate industry’s difficulties. Sector NPLs jumped to 2.11% (+52 bps YTD), while the LLR ratio fell to 97% (-27ppt YTD) – below 100% for the first time since 2020. Circular 02/2023/TT-NHNN) should help to reduce reported NPLs and provisioning pressure, but the underlying trends are still a concern.

VCB and ACB retain the top-2 rankings in our CAMEL framework for 2Q23, largely due to their superior asset quality metrics. Investors should focus on credit quality given the underlying negative trends.

Attractive valuations. The listed stocks have risen by an average 26% YTD, outperforming the VNI by +8ppt. But valuations are still cheap at a median 0.9x 2024E P/B, with 2024E ROE of 20% (source: Bloomberg).

Recommendations: Reiterate BUY on ACB, MBB, VCB, HDB, and VPB. We downgrade STB to HOLD-Underperform with the publication of this note.

For the complete note, please access here: Bank_Sector_Yuanta Vietnam Coverage

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