Bank Sector_Impact of Document 3947/NHNN

The SBV issued Document No. 3947/NHNN-TD on June 3, 2021 to require banks to implement measures to mitigate the impact of Covid-19 on borrowers. Specifically, the SBV requires banks to continue the loan restructuring / interest rate reduction policies while maintaining loan classification categories of the relevant assets.

This policy is obviously not new, but it confirms the SBV’s prudent policy to support the economy in the context of the pandemic.

This also implies that the SBV recognizes the risks of the recent wave of Covid19 to borrowers and the overall economy. According to the GSO, 59,800 enterprises were dissolved in 5M21 (+23% YoY).

Bank system liquidity has decreased, demonstrated by an increased interbank rate (see the upper left figure). Overnight rate increased by 95bps YTD, and 1M interbank rate jumped by 178ppt YTD. In 5M21, credit growth of 4.7% YTD was faster than deposit growth of 2.6% YTD. Liquidity constraints may have increased interest rates, but we expect the SBV to retain its loose policy at least until yearend. This will help reduce banks’ funding costs and also loan interest rates. We expect 2021E banks’ NIM to remain flat or slightly higher than 2020’s.

Overall, we expect real NPLs to increase due to the pandemic, and provisioning should also increase as a result. Therefore, we continue to recommend that investors focus on quality banks with high LLR ratios.

Our top picks VCB (BUY), and MBB (BUY). Both banks have high LLR ratios of above 100%, especially VCB, which reported an LLR ratio of a sector-high 279% as at 1Q21. VCB remains the highest-quality bank based on our CAMEL ranking and its valuation premium is justified in our view. We have highlighted MBB as one of our top picks since March given its high quality and previous valuation discount; however, MBB’s shares have risen 60% YTD and it is now 11% above our target price. As such, we are reluctant to aggressively chase the ticker here.

For the complete report, please access here: Impact of Document 3947-NHNN

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