Fitch revises Vietnam’s outlook to positive

Ha tHuy

Bright prospects for bank stocks

Bank tickers are anticipated to remain in the spotlight in 2021, with investors racing to capitalise on bright profit prospects.

BIDV Securities Company (BSC) recently issued a report on the prospects of the banking sector, saying commercial lenders would witness a sharp rise in profit thanks to the economic rebound and good control of post-pandemic asset quality.

The BSC report assumed that the whole sector’s pre-tax profit could soar 28 percent, chiefly attributable to 14 percent credit growth in 2021, plus the interest rate going sideways and reduced pressure on making loan loss provisioning.

Notably, despite their continual shortselling in Vietnam’s stock exchange since early 2021, foreign investors and investment funds are holding banking tickers, putting their trust in their upbeat growth potential. Finnish equity fund PYN Elite even forecast 50-60 percent growth for banking tickers in the first quarter this year, compared to a year ago.

BSC’s report, meanwhile, says that a slew of banks are scaling up efforts to replenish their low-cost capital source (current account savings account - CASA), striving to expand customer base through reducing transaction fees or upgrading operation system and infrastructure. The CASA ratio in the banking sector reached 18 percent in 2020 and is expected to further increase in the forthcoming time.

With a flexible business model and

low bad debts ratios post-pandemic, small- and medium-sized banks have numerous opportunities to bolster operational efficiency. By beefing up the retail segment via cutting-edge payment technology platforms to augment CASA, several banks have succeeded in enhancing their business efficiency. Dr. Can Van Luc, chief economist at BIDV said that with Vietnam’s success in containing the Covid-19 pandemic and on-going economic rebound as well as positive forecasts by prestigious financial institutions like Citigroup, Goldman Sachs, and Nomura, alongside several Asian markets, Vietnam’s stock market might pick up about 15-20 percent this year.

According to the Vietnam Financial Consulting Association (VFCA) and BSC, Vietnam’s stock market might not be growing as impressively as in 2020, but growth would be more sustainable. The VN-Index is anticipated to be hovering around 1,200-1,300 points, leveraging economic rebound, listed firms’ profitability, lower price-to-equity ratio compared to the region and the world, and well-controlled bad debt.

Banks would be the first group to cash in on this rebound, which explains the sharp rise in banking stock prices from the outset of this year. According to SSI Research, the price-to- book (PB) ratio of local banks averaged 1.27x in 2019 with return on equity (ROE) ratio averaging 18.6 percent. In 2020, the PB averaged 1.4x with ROE averaging 17.2 percent, whereas average PB ratio in 2021 is set at 1.53x.

Economic rebound is partly reflected in the ticker price. Choosing the proper tickers, therefore, would help the investors to pick higher returns.