CAMEL Analysis_4Q19 Update
07/02/2020 - 08:19
We have updated our rankings of the 18 listed Vietnamese banks based on the CAMEL framework, a fundamental approach to bank analysis that focuses on Capital, Asset quality, Management, Earnings, and Liquidity. For a detailed description of the CAMEL methodology, please see our July 5 report titled “Vietnam Banks CAMEL Analysis – The good, the bad, and the chronically mispriced.” The updated rankings in this report are based on the banks’ 2019 unaudited financial statements, whereas our initial report was based on 2018 audited results. Table 3 inside presents detailed scores on 63 fundamental metrics for each listed bank. Clients of Yuanta Securities who wish to see the underlying ratios and other data are encouraged to request it from us.
We remain Overweight the banks and reiterate BUY on STB, MBB, and VPB. We also reiterate HOLD-Outperform on VCB and BID and HOLD-Underperform on HDB.
Themes and catalysts:
- Positive asset quality trend. The sector’s aggregated NPL ratio was 1.44% (-32bps QoQ / -24 bps YoY) in 4Q19.
- Cost efficiency continues to improve. Adj. CIR was 44% in 2019 (-3ppt YoY).
- 2019 NIM of 3.25% was up 29bps YoY.
- 2019 PBT increased 29% YoY among all of the 18 listed banks.
Trends and Risks:
- Coronavirus & macro uncertainty: As a proxy on economic trends, bank shares face short-term risks. But we believe the economic impact will be short-lived and remain Overweight.
- Funding pressures could dent NIM/asset growth. Banks must now transfer all treasury deposits to the SBV by the end of each day.
VCB remains Vietnam’s No. 1 CAMEL-ranked bank. VCB’s sector-low funding cost continues to be a core competitive advantage. We expect that fee income in 2020E will boom thanks to the exclusivity bancassurance deal with FWD.
MBB (Buy), ACB (Not Rated) and TCB (Not rated) round out the top three. MBB has supplanted ACB as the No.2 CAMEL-ranked bank in our 3Q19 CAMEL update. MBB’s improvement was largely due to capital solvency (i.e., equity/assets of 9.7% was up 20bps QoQ and 30bps YoY), and profitability (i.e., NIM +34bps YoY, adj. CIR fell -5ppt YoY, and ROAE +2ppt YoY).
STB’s (BUY) CAMEL score of 2.8 deteriorated slightly QoQ from 2.7. But crucially, STB’s asset quality continues to improve as management works through the legacy NPAs. The bank’s total NPA ratio (which includes legacy bad assets) declined to 16.6% in 4Q19 (-60bps QoQ / -5.2ppt YoY). We reiterate BUY on STB, as we believe that its turnaround story will lead to a rerating.
The journey is the goal. The CAMEL framework allows us to track banks’ fundamental trends through time, and thus (we hope) to identify potential rerating stories before the market does. For example, CAMEL laggard LPB (Not Rated, but ranked 16th on our 4Q19 score card) scored 3.3 on our 4Q19 CAMEL ranking, an improvement on its 3.5 score in 3Q19. This was largely due to its improvement in profitability (i.e. fees/revenues of 6% improved 2ppt QoQ) and solvency (i.e. equity/assets-plus-off-balance-sheet-exposure of 5.4% increased 30bps QoQ). This improvement is meaningful despite LPB’s still-low overall ranking because the stock is trading at 0.6x 2019 P/BV, and the sequential fundamental quality improvement suggests a possible rerating if it continues.
For the complete report, please access here: Banks_CAMEL_07.02- 2019_Updated
Analyst: Tanh Tran, firstname.lastname@example.org