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|Banking stability playing key role in economic health. Source: techcombank.com.vn|
In our analysing report, the aggregate loan book of 17 listed Vietnamese banks which accounted for 67 per cent of system credit expanded 3.2 per cent in the year-to-date in the first quarter of 2021, tripling the level seen in last year’s period. Aggregate deposits of listed banks grew 1.4 per cent in the year-to-date.
Annualised net interest margin (NIM) for Q1 improved ranging 2-118 basis points on-year as cost of fund declined more than offset assets yield dropped. Average annualised NIM of listed state-owned banks rose 27 basis points on-year to 3.1 per cent. Meantime, the average annualised NIM of listed private banks grew 41 basis points on-year to 4.3 per cent.
Techcombank, ACB, and VIB recorded the highest NIM improvement in the first quarter. Besides benefiting from lower funding costs, Techcombank has their annualised assets yield increased on effectively expansionary loan book while ACB and VIB, with high exposure to individuals, cushioned the falls in their asset yields.
Net interest income (NII) grew solidly in the first quarter of 2021 across banks on improved loan book rise and NIM. Total NII of 17 listed banks rose 23.7 per cent on-year in that time. VietinBank, Techcombank, and ACB posted robust NII growth on both solid NIM increase and effectively expansionary loan book.
Non-interest income (Non-II) of the 17 listed banks grew 43.5 per cent on-year in Q1, nearly doubling the growth rate of 2020’s first quarter. This is driven by its net fee income (NFI) increase of 62.3 per cent on-year in Q1 this year, which made up at least 40 per cent of banks’ non-II and was fivefold the growth rate seen in 2020’s Q1.
Solid credit expansion on the economic recovery raised trading activities between businesses, which in turn enhanced banks’ settlement income and commission fee income. These incomes were the major contributions to banks’ NFI as they accounted for NFI growth.
Banks’ earnings grew significantly in the first portion of this year, with earnings of 17 listed banks rose 77.3 per cent on-year.
In our view, system credit would rebound to 13 per cent on a GDP growth of 6.5 per cent in the latter half of 2021 due to several reasons.
Resurgence in external demand compels manufacturing and trading activities in the latter half of 2021, given the economic recovery of advanced countries on stimulus packages and the efficacious process of inoculations. In a broader context, other countries expect to reopen their borders in the third quarter and welcome people to come back to work in safer conditions which increases consumption on improved income.
Low lending interest rates under the current loosening monetary policy also boosts businesses to take new loans for their operations.
We forecast manufacturing businesses to resume full capacity in September when the latest wave of COVID-19 is controllable. Tourism and services are anticipated to rally later this year or in 2022 when Vietnam can access enough vaccines, helping to normalise livelihoods.
The growths of banks’ loan books, which made up half of system credit, likely exceed their 2021 credit growth caps given by rapid expansion in the first five months of this year.
Specifically, banks below have more advantages in capitalising on the economic recovery trend in general as well as manufacturing and service resurgence in specific, given their rich and diversified customer base (such as Vietcombank, VietinBank, MB, and ACB), and ample funding sources with high current accounts saving accounts ratio (Techcombank, Vietcombank, and MB). The cheap or/and myriad funding sources allow banks to offer credit to customers at competitive rates.
On cost of fund front, banks would continually benefit from low funding costs given the accommodative monetary policy which is expected to remain in the latter half of 2021 to support the economy as well as by banks’ sufficient liquidity. While interbank rates rose in April and May, we believe this resulted from banks’ utilisation of the cheaper funding.
The reasons are that interbank rates were stable in Q1 when system credit grew solidly; and banks’ loan-deposit ratio at the end of the quarter (except VietinBank and BIDV) continually did not exceed the 80 per cent level, and were lower than the cap of 85 per cent. Lastly, interbank rates reversed in June. On the asset yield front, increasing borrowing demand for business resumption on the economic recovery enhances banks’ asset yield.
In April this year, the State Bank of Vietnam (SBV) promulgated Circular No.03/2021/TT-NHNN, announcing additional conditions for debt restructuring and extending the roadmap for restructuring debts provisions until 2023.
In general, we expect asset quality to be improved at end of this year. Businesses can resume operations and pay their debt obligations. Banks with a diversified customer base, modest or moderate exposure to high-risk sectors such as unsecured loans, and lesser degrees of customer concentration will have more opportunities to improve their asset quality.
In terms of the consumer finance sector, however, we predict adverse impacts from the pandemic will be a tough nut to crack for all players. Loan growth in consumer finance companies is decelerating, while bad debts rose across two of the three major finance companies in FE Credit and HD Saison.