Banks_2Q21 Earnings Preview

Credit growth recovered in 2Q21. In 5M21, credit growth of the whole sector was 4.7% YTD, which is more than double the 2.0% YTD in 5M20. 2Q21 net interest income should increase YoY driven by this higher credit growth. Most banks have reached their initial credit quota, and we believe that the SBV will again increase credit quotas, especially for the banks with strong capital levels such as TCB, VPB, HDB, and MBB.

We expect NIMs to improve in 2Q21 driven by high credit growth and low funding cost. However, bank system liquidity has exhibited signs of constraints including as increased interbank rates. The overnight rate has increased by 81bps YTD and the 1M interbank rate has risen by 1.1ppt YTD. Liquidity constraints may have increased interest rates, but we expect the SBV to retain loose policy at least until yearend. This should pressure bank funding costs and loan interest rates. Thus, we expect 2021E NIM to remain flat or slightly higher than 2020’s.

We expect 2Q21 fee income to increase driven by bancassurance sales and upfront fee recognition at banks such as ACB, CTG, MSB, and VCB.

However, provisioning may increase in 2Q21, especially at the banks with relatively low LLR ratios (see our 2^nd chart in the left margin). Circular 03/2021/TT-NHNN allows banks to provision for restructured loans over three years, but strengthening reserve buffers now against a likely increase in reported NPLs later would be prudent, in our view.

Net-net, we expect 2Q21 bank earnings growth to be solid, but not as strong as 1Q21’s due to the expected QoQ increase in provisioning.   

Our focus remains on the quality banks such as VCB, MBB, ACB. VCB remains the highest-quality bank based on our CAMEL ranking and its valuation premium is justified in our view. We chose MBB as a top pick in March given its high quality and previous valuation discount; however, MBB’s shares have risen 67% YTD and it is now 14% above our target price. As such, we do not recommend chasing the stock here.

For the complete report, please access here: Banks Earnings Preview_2Q21

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