Journal Report

Journal Report 25: Vietnam Banks report Summary

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Summary of Vietnam Banks report by JPMorgan published on Dec 14, 2020

Investment thesis

  • Increasing EPS and PT
    • EPS change: driven by lower provisions & higher volume growth thanks to higher GDP.
    • PT increase: broadly following the EPS shifts.
  • Foreign Ownership Limit (FOL) gap
    • Banks have set at 22-23%, below the regulatory limit of 30%
    • In case the Ministry of Finance’s draft guidance is adopted, foreign room in both stocks will be opened up
    • Foreigners’ being allowed to take larger positions at market price is likely to drive volumes and re-rating.
  • Loan Growth
    • This year, the State Bank of Vietnam (SBV) expects credit growth of 8-10%
    • Next year, credit quota is likely to be higher, potentially at mid-teens
    • Banks with higher capital and better asset quality are expected to receive higher quotas
  • Asset quality
    • Slippages are limited given low restructured loans (1.3-8.1% of book)

Covered banks:

  • TCB and VPB offer 72%/29% potential upside, with potential FOL changes as a key catalyst.
  • VCB and ACB: re-rating has happened, led by EPS growth and book value compounding.

Investment summary

Macro

  • Vietnam’s GDP resilience in 2020E, acceleration in 2021E
  • Runway for growth from current account surplus
  • Acceleration in EPS growth in 2021-22E
  • Vietnam banks outperformed the rest of ASEAN by 30% YTD

ACB, TCB, VCB, VPB – specific

  • ACB: shift to HOSE, insurance deal
  • VPB: cash loan regulation, FE Credit potential IPO
  • TCB: still significant upside to PTs (72%)

Thesis 1: Increasing EPS and PTs

  • EPS change: driven by lower provisions & higher volume growth thanks to higher GDP.
  • PT increase: broadly following the EPS shifts.
  • Key risks: 
    • worse-than-expected slippages on asset quality
    • weaker-than-expected volume growth
    • macro risks; e.g: sequential waves of domestic COVID-19 outbreaks.

Increasing PTs

Vietnam banks PT changes

JPM’s EPS estimates for TCB and VPB are higher vs the Street

Lower credit costs expected in 2021-22E

Thesis 2: Foreign Ownership Limit (FOL) gap is a key driver

  • Banks have set at 22-23%, below the regulatory limit of 30%
  • In case the Ministry of Finance’s draft guidance is adopted, foreign room in both stocks will be opened up
  • Foreigners’ being allowed to take larger positions at market price is likely to drive volumes and re-rating.

TCB and VPB are self-determining FOLs

Stocks at FOL have significantly lower foreign Average Daily Turnover (ADT)

Foreign share of trades are much lower at TCB, VPB, ACB

Thesis 3: Accelerating Loan growth

  • This year, the State Bank of Vietnam (SBV) expects credit growth of 8-10%
  • Next year, credit quota is likely to be higher, potentially at mid-teens
  • Banks with higher capital and better asset quality are expected to receive higher quotas

TCB & VCB: Expecting high volume growth

TCB: highest capital adequacy ratio (CAR) in coverage

Possible higher quotas in 2021 due to low Non-performing loans (NPLs)

Thesis 4: Benign Asset quality

Slippages are limited given low restructured loans (1.3-8.1% of book)

Low restructured loans

NPLs remain manageable

NPL coverage over 100% by 2022, save for VPB

Reference:
1. JPMorgan Banks Report

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