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12/08/2020 - 10:56

Themes and catalysts

Trends and Risks

VCB (HOLD-UPF) remains Vietnam’s No. 1 CAMEL-ranked bank. VCB’s asset quality is solid given its sector-high loan loss reserve (LLR) ratio of 254% (+20ppt QoQ/+78ppt YoY). This reflects VCB’s prudent approach to building a strong buffer against probable asset quality deterioration due to Covid-19. VCB is still the best bank in Vietnam in our view, and our HOLD-Underperform rating is entirely due to its relatively high valuation.

TCB (Not rated), ACB (Not Rated), and MBB (BUY) continue to round out the top four. All of the top four banks have solid asset quality according to the CAMEL framework, of which VCB and MBB rank highest in our official coverage.

Banks’ 2Q earnings results were boosted by low provisioning, which we think is unstable given the likely rise in NPLs in upcoming quarters. Reported NPLs are not a perfect signal of underlying asset quality when the SBV’s forbearance policy is applied. However, we expect that NPLs will increase significantly once the forbearance policy ends, which might likely happen in early 2021. At that time, banks with low LLR ratios will face substantial provisioning pressure, in our view (see figure 2 for the listed banks’ LLR ratios).

In the current dismal operational outlook, earnings might not a perfect indicator of operational results. Instead, investors should focus on asset quality indicators such as credit costs and LLR ratios. Thus, investors should focus on banks with high LLR ratio such as VCB (HOLD-UPF), MBB (BUY), and ACB (Not Rated).

For the complete report, please access here: Banks_CAMEL_2Q20_Updated

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