Bank Sector Preview_2022E

We expect banks’ earnings to improve in 2022E along with the economic recovery. We believe that banks will continue to support Covid-impacted borrowers with eased credit terms, which will constraint NIM. However, fee income should increase more sharply, driven by bancassurance sales and credit card fees.

CASA ratios to increase as banks have been actively investing in digital banking, which should help to boost CASA deposits.

Digitalization will also help banks improve cost efficiency in 2022E and beyond. Adj. CIR of the sector median was 40% (-8ppt YoY), and we expect CIR to continue decreasing going forward.

We expect credit costs to jump, especially at low-LLR banks given the potential new NPL formation due to the Covid impact. However, high-LLR banks will have the flexibility to reduce provisioning to boost their earnings without sacrificing asset quality.

Sector loan loss reserve (LLR) ratio was 115% (-6ppt QoQ/+32ppt YoY) in 3Q21. The sector’s NPL ratio was 1.62% (+21bps QoQ/-23bps YoY), and provisioning policies were mixed among banks (see figure 6).

Neutral weighting on the sector given the impact of Covid. We expect NPLs to jump in 2022E and low-LLR banks might need to boost provisioning, which will drag their earnings.

Reasonable valuations. The sector trades at an average of 1.7x 2022E P/B. We expect the broad stock market to increase in 2022E and the bank sector to play a major role in that process due to its scale.

We continue to recommend sticking with high-quality banks with high LLR ratios especially VCB and MBB given the impact of the pandemic

For the complete report, please access here: Bank_Sector_Preview_2022E

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