Banks 3Q20 preview: A mixed bag

What’s new?

• Liquidity continues to improve due to SBV easing.
• Credit growth was 6.1% in 9M20 vs. 8.6% in 9M19.
• The SBV has allowed higher credit growth room for some banks.

Our view

• We expect credit growth to continue to increase in 4Q20 given strong yearend capital demand and ample system liquidity.
• Earnings in 3Q20 will be bank-dependent. From a prudential view, banks with low LLRs should boost provisioning in 3Q20, in our view

3Q20 earnings are likely to be mixed. We expect banks with already high LLR ratio (i.e. VCB, ACB, MBB) to post strong results in 3Q20. Reported NPLs have not increased substantially due to the SBV’s forbearance policy, but our view is that banks with low LLRs (i.e. VPB, STB, HDB, BID) should increase provisioning given the reality of asset quality deterioration. Thus, rising provision costs might dent profits in 3Q20 and subsequent periods.

Credit growth improved in 3Q20. Credit growth of the whole sector was 6.1% in 9M20. Ample liquidity (helped by SBV easing) has reduced interest rates and boosted credit growth. The manufacturing recovery in September (as evidenced by the 52.2 PMI result) is another supportive factor for ongoing credit growth.

We expect MBB and ACB to post strong results in 3Q20 given their high credit growth and solid asset quality. High 2Q20 LLR ratios at MBB (121%) and ACB (144%) indicate relatively low pressure for these banks to increase provisions. Relatively high credit growth in the first 9M20 should also support their earnings. We estimate credit growth of 9% for both ACB and MBB in 9M20. Also, the SBV has increased MBB’s credit growth guidance from 11.8% to 20.0%.       

STB has achieved c.VND2.3 tn in PBT in 9M20, fulfilling 90% of its full-year target, according to the bank’s CEO. Preliminary credit growth was about 9% YTD, and 3Q20 NPLs are below 3%. The SBV also increased credit growth room for STB from 9.0% to 13.5%.

Our top picks still focus on quality names, such as MBB (BUY) and ACB (BUY). We also have a BUY call STB, HOLD-underperform on VCB, VPB, HDB, and SELL on BID. VCB is the top-quality bank in our view, and the HOLD-underperform rating is solely due to its relatively high valuation. STB’s recent share price increase was largely due to spurious (in our view) M&A chatter. We would wait for a pullback before revisiting STB.

For the complete report, please access here: Banks 3Q20 Earnings Preview

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