CAMEL Analysis_1Q21_Quality is Key

What’s new?

• 1Q21 PATMI of the 23 listed banks: VND41 tn (+23% QoQ/+78% YoY).
• 1Q21 net interest income was VND81 tn (+2% QoQ/+25% YoY).
• Total 1Q21 credit cost was VND22 tn (-13% QoQ/+2% YoY).
• LLR ratio: 111% (+7ppt YTD).
• NPL ratio: 1.41% (+2bps YTD).

Our view

• 1Q21 YoY results were driven by low funding cost, high fee income, and high NPL recoveries.
• High credit growth and fee income will drive earnings in 2021E.
• Banks with high provisioning coverage will have more flexibility to lower provision and boost earnings.

Overview: We have updated our rankings of the 23 listed Vietnamese banks based on our CAMEL analytical framework. We have added two more banks to our CAMEL universe: ABB and NAB. Perhaps unsurprisingly, VCB remains No. 1 in our CAMEL rankings. We also have BUY recommendations on ACB (ranked 3rd), MBB (4th), and HDB (13th).

Quality is key

VCB (BUY) remains our No. 1 CAMEL-ranked bank. VCB’s loan loss reserve (LLR) ratio of 279% was down -89ppt YTD, but this is still the highest figure in the sector. This reflects VCB’s prudent and proactive approach against underlying asset quality deterioration amid the macro shock created by COVID-19. TCB (Not Rated), ACB (BUY), and MBB (BUY) round out our top four CAMEL-ranked banks once again.

Surprisingly, KLB (Not Rated) jumped from the bottom to 12^th in our 1Q21 ratings. KLB divested 176 mn STB shares, improving its capital efficiency. It also reduced its NPL ratio by -3.86ppt QoQ to 1.57% and improved its ROE to 14.5 (+11.2ppt QoQ/+13.1ppt YoY).

1Q21 earnings boosted by increased net interest income and fees. Improved net interest income was largely driven by reduced funding costs backed by SBV policy. Of course, loan yields also decreased, but apparently at a slower pace than that of the deposit rate. In addition, upfront fees and bancassurance sales helped boost profitability.

Sector loan loss reserve (LLR) ratio increased by 7ppt YTD to reach 111%. However, the sector’s NPL ratio also increased, albeit slightly, by 2bps to reach 1.41%. Circular 03/2021/TT-NHNN relieves provisioning pressures and should also help earnings in 2021E. Please see tables 2-5 for more details.

We continue to recommend a focus on quality banks with high LLR ratios such as VCB, MBB, and ACB. As one of our top picks, VCB remains the highest-quality bank and its valuation premium is justified in our view.

MBB also ranks as one of our top picks as a high-quality bank with strong operational results. We believe MBB deserves a premium to peers, but the stock trades at 1.6x P/B 2021E vs. the sector median of 1.7x.

For the complete report, please access here: Banks_CAMEL_1Q21_Updated

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