Banks 4Q20 earnings preview: Positive Earnings

What’s new?

• Liquidity has remained strong helped by SBV’s easing.
• Credit growth was 10.1% YTD as at Dec 21, 2020, thus exceeding the SBV’s reduced target of 9-10% for 2020.
• The SBV allowed higher credit growth room for some banks.

Our view

• 4Q20 NIM should improve slightly, boosting 4Q20 PPoP. However, provisioning may spike, especially at low-LLR banks.
• For 2021 – we expect credit growth and net interest income to recover. Fee income will also increase, primarily driven by bancassurance.

Credit growth recovered in 4Q20. As at Dec 21, 2020, credit growth of the whole sector was 10.1% YTD. Ample liquidity drive by the SBV’s easing policy has helped lower interest rates and boosted credit growth. The recovery in manufacturing in Dec should have also supported credit growth. December manufacturing PMI was 51.7 (vs. 49.9 in flood-affected November). A PMI above 50 represents expansion.

We expect NIMs to improve in 4Q20, driven by persistently low funding cost due to the SBV’s easing policy and slightly higher yields given the yearend uptick in loans and higher lending rates, as most banks have ended their favorable interest rate loan programs.

Moreover, we expect transaction and bancassurance fees to increase in 4Q20, thus further boosting 4Q20 pre-provisioning operating profit.

However, provisioning may increase in 4Q20, especially at the banks with relatively low LLR ratios. Strengthening reserve buffers against a likely increase in reported NPLs would be prudent, in our view, as NPL reclassification, which has been obscured by Circular 1, may be a feature of 2021 (and most certainly will occur eventually).

For 2021, we expect credit growth to rally as the economy recovers on domestic control of the pandemic and the global vaccine rollout. Liquidity should remain strong, as SBV is likely to maintain loose policy at least until 2H21. The government’s 2021E GDP target is 6.5%, which may be conservative, and we expect credit growth to be a key contributor.

Our focus remains on the quality banks such as VCB, ACB, and MBB for 2021. VCB is the top-quality bank in our view and offers catalysts to boost earnings in 2021 such higher net interest income as pandemic-era loan arrangements expire, a portion of the upfront fee from the banca exclusivity deal with FWD, and possibly reduced provisioning without sacrificing prudence given its sector-high LLR ratio of 380%.

For the complete report, please access here: Banks Earnings Preview_4Q20

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