Bank Sector_3Q23_update

Aggregate sector PATMI was VND47 tn (-6% QoQ/-2% YoY) in 3Q23, largely due to lower net interest income (-1% QoQ/-4% YoY).

The sector NPL ratio jumped +13bps QoQ/+64bps YoY to reach 2.24%, while the LLR ratio decreased by -4ppt QoQ/-49ppt YoY to 94% in 3Q23.

Mixed provisioning policies. Most banks reduced provisioning in 3Q23, so overall sector credit costs declined by -1% QoQ/-2% YoY. This is not impressive in the context of rising NPLs, but some banks (i.e., ACB, BAB, BID, MBB, MSB, SSB, TCB, TPB, & VIB) increased 3Q23 provisioning.

3Q23 earnings were driven by non-interest income, mostly gains from FX and securities trading. We expect net interest income to re-emerge as the key (and more sustainable) earnings driver in 4Q23 and 2024, on increased credit growth and reduced funding costs.

Asset quality deterioration is a concern, but we remain optimistic for a recovery in 2024 along with the economic rebound. Also, sector liquidity is ample (see p.6-10). We think that the low ROE of 2023 is likely to be a temporary setback, and we expect a recovery in 2024.

Quality drives returns. Share prices don’t follow our CAMEL scores exactly, but factor analysis indicates high correlations of 5-year monthly stock returns with our Management and Earnings scores and high overall rankings are correlated with lower share price volatility (see p. 13-14).

Overweight the banks given 1) improved net interest income in 4Q23 and beyond, driven by increased credit growth and lower funding costs; and 2) cheap valuations, with a sector median 0.9x 2024E PB and ROE of 20%. We have BUY ratings on ACB, MBB, HDB, VCB, and VPB.

Risks to our view: a lengthy cyclical downturn and asset quality deterioration driven by global macro/liquidity conditions and/or a worsening/prolongation of the domestic property market’s recession.

For the complete report, please access here: Banks_CAMEL_3Q23_Updated

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