banking industry report 2019 - vcbs

CONTENTS

10M.2018 HIGHLIGHTS ....................................... 1

1. Credit and deposit growth ............................. 1

2. Interest rate ................................................... 2

3. Hanlding NPL process has ............................. 3

4. Regulations to ensure system safety ............... 4

5. Business results of banks in 9M.2018 ............ 5

OUTLOOK FOR THE REMAINING OF 2018 AND

YEAR 2019 ............................................................. 6

1. Credit and deposit growth forecast. ................ 6

2. interest rate forecast. ...................................... 8

3. Retail credit market ....................................... 8

4. Acceleration of handling NPL process ........... 9

5. Requirement capital adequacy standards ..... 10

6. Predicted business results of banks ............. 10

RECOMMENDATION ........................................ 12

APPENDIX ........................................................... 14

EQUITY ANALYST

Ngo Phuong Anh

[email protected]

VCBS’s Research

www.vcbs.com.vn/vn/Services/AnalysisResearch

VCBS Bloomberg Page:

<VCBS><go>

BANKING INDUSTRY REPORT 2019

19th

December, 2018

Phòng Nghiên cứu và Phân tích VCBS Trang | 0

REPORT SUMMARY

10M.2018 HIGHLIGHTS

In the first 10 months of 2018, the credit and deposit growth rate were slow down

compared to the same period in 2017. Deposit interest rate has shown signs of

increasing since September whereas lending interest rate has remained stable. The

liquidity shortage has not occured on the interbank market.

Regulations which ensure safety of the banking system is being monitored closely.

Handling NPL process was accelerated thanks to Resolution 42/2017/QH14.

Furthermore, banks themselves had positive activities to make provision for credit

losses, write-offs and recovering NPLs.

Business results of banks are diversified over 9M.2018. While there are some banks

maintained a high growth rate over the same period last year, others showed lower

performance.

OUTLOOK FOR THE REMAINING OF 2018 AND YEAR 2019

2018 credit growth expectation is lower than the previous year, at 14-15%. 2019

credit growth is expected to reach over 15%. Deposit interest rates may continue to be

under pressure, while lending interest rates may be unlikely to increase in line with

lending rates. Hence, NIM of most banks may hardly increase in 2019.

Retail credit market is still abundant to expand, however, consumer credit segment is

noticeable for high risk. Additionally, we consider in the coming period, more banks

will accelerate their handling NPL process, by making provision for not only NPLs

and VAMC, but also hidden loans which are not clearly reflected in their financial

statements.

Results of business of listed banks in 2019 continue to be diversified. Furthermore,

NIM of most banks is difficult to expand and pretax profit is difficult to maintain high

growth rate as it has performed in 2018.

RECOMMENDATION

We keep our recommendation with ACB, MBB thanks to their good fundamentals

and bright prospects in the near future. Main risks that may arise when investing in

banking stocks come from macroeconomic volatility factors, interest rate and

exchange rate risk.

mailto:[email protected]

http://www.vcbs.com.vn/vn/Services/AnalysisResearch

VCBS Research Page | 1


10M.2018 HIGHLIGHTS

Credit has grown by 9.89%,

which was the lowest

growth rate in the recent 3

years.

Deposit growth of 9M.2018

was 9.15%, slower than the

same period in 2017.

1. Credit and deposit growth maintained at a low level compared to those in 2017

Low credit growth

According to the State Bank of Vietnam (SBV), as of early October, credit growth of the economy

reached 9.89%. This is the lowest growth rate of outstanding loans in the past three years, when credit

growth was 11.02% in the same period of 2017; 10.46% in 2016 and 12.12% in 2015. Additionally,

this credit growth is quite far from the SBV's 17% growth target for the whole year in 2018.

In terms of duration, long term loans accounted for 52.7% of the total outstanding loans and

unchanged from the end of 2017. Short-term capital for medium and long term loans was 30.9% % by

the end of May.

Directive number 04/CT-NHNN on August 02nd

, 2018 clearly stated the guideline of the SBV in

controlling the credit growth as well as credit quality of the banking system. We assessed that

directive no.04 was given to guide the business activities of credit institutions and supervision

activities of management agencies in the coming time. The credit structure is driven to focus on

priority sectors, and tightly controlled on credit for potentially risky areas such as real estate lending

and consumer lending of finance companies ... to ensure safety of banking operations. Therefore,

under the impact of Directive no.04, credit growth in 2018 may be difficult to reach the target of 17%

set by the SBV from the beginning of the year.

Source:SBV, VCBS summaries

Deposit growth was slower than the same period in 2017

According to the General Statistics Office (GSO), as of September 20th

2018, deposit increased by

9.15% (10.08% in the same period last year). The deposit demand for mobilization in some

commercial banks has been gradually increasing towards the end of the 2018. The main reasons come

from deposit demand to satisfy the system safety ratios, short-term capitals for medium and long-term

loans or other ratios preparing for credit growth next year.

9.89%

-5%

0%

5%

10%

15%

20%

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Credit Growth

2013 2014 2015 2016 2017 2018



Deposit rates for fewer than

12-month terms have shown

signs of increasing since

September 2018.

Lending rates remain

stable.

Interbank rates created

new base compared to its

2017 level.

2. The deposit interest rate has shown signs of increasing since September, while

lending interest rates still remain stable. The interbank rate created new base

compared to the general level in 2017

Interest rates were stable in the first 9 months of 2018 thanks to the ample liquidity of the banking

system and the pressure from the banks. According to the SBV, by the end of September 2018, the

VND deposit rate was commonly at 0.6 - 1% per year for demand deposits and under 1-month

deposits; 4.3-5.5% per year for 1-month to under 6-month deposits; 5.3 to 6.5% per year for 6-month

to under 12-month deposits; 6.5 - 7.3% per year for over 12-month deposits. USD deposit rates are 0%

per year for deposits of individuals and organizations.

From September 2018, many state-owned commercial banks have recorded increase about 50 basis

points (bps) over periods of less than 12 months in deposit rates. Therefore it narrowed the gap

between the average interest rate of this group and that of small and medium-sized banks.

Accordingly, the average deposit rates of the whole sector also increased and set new ground.

We consider that above corrections of VND deposit rates come from: (1) the preparation of banks with

increasing deposit demand (especially when considering seasonal factors). (2) funding prepairation of

credit institutions which assum interest rates on the interbank market could record higher levels next

year.

For lending rates, VND lending rates are common at 6.0 - 9.0% per year for short term; 9.0-11% per

year for medium and long term. USD lending rates were around 2.8-6.0% per year; in which, 2.8 -

4.7% per year short-term rates, 4.5 - 6.0% per year for mid and long-term rates.

Source: SBV, JSC banks, VCBS summaries

System’s liquidity remained ample in the first five months of 2018 and barely affected by seasonal

effects. However, in the second half of the year, under the SBV's active regulation, interbank interest

rates rose higher than its 2017 level. Additionally, new cash flow into the market in this period is

unclear, hence, banks toned to prepare for the decreasing liquidity scenario at the end of the year due

to seasonal factors. It should also be noted that there was no shortage of liquidity during this period

4.50

5.00

5.50

6.00

6.50

7.00

7.50

1/2018 2/2018 3/2018 4/2018 5/2018 6/2018 8/2018 9/2018 10/2018 11/2018 12/2018

Deposit rates (Unit: %)

D.R (1 month) D.R (3 months) D.R (6 months) D.R (above 12 months)



when the disbursement of government bonds through the State Treasury (ST) had improved over the

same period but not over mutation.According to the ST’s report, as of November 2018, government

disbursement through the ST was estimated at VND 241,358.1 billion, completing 62.9% of the plan.

Bond yields fell sharply and bottomed out in the first quarter. Then, they were under pressure for the

rest of theyear. Short-term bond yields were more volatile than the long-term, following closely the

interbank market. While the momentum was fairly uniform across all terms, the upward trend was the

strongest in short terms, sensitive to liquidity in the money market. At the end of November, according

to Bloomberg statistics, the yield on 1-year, 2-year, 3-year, 5-year, 7-year, 10-year and 15-year terms

reached 4.15% (+ 50.5 bps ytd), 4.263% (+44.3 bps ytd), 4.408% (+44.8 bps ytd), 4.625% (+32.5 bps

ytd), 4.9% (+26.3 bps ytd), 5.18% (-0.7 bps ytd), 5.425% (-25 bps ytd).

Source: Bloomberg, VCBS summaries

The handling NPL process

was boosted by the efforts

of the banks themselves and

the SBV's legal documents.

3. The hanlding NPL process has been further accelerated

As reported by the SBV, as of June 30th

, 2018, the credit institution system has solved VND 138.29

trillion of non-performing loans (NPLs), determined under Resolution 42/2017/QH14 (excluding

VND 61.04 trillion provisions to deal with on-balance sheet NPLs). Furthermore, the amounts of

NPLs handled on balance sheet was VND 70.23 trillion (accounting for 50.78% of the total amount).

The amounts of off-balance sheet NPLs handled under Resolution no.42 was VND 21.59 trillion

(accounting for 15.61%) and the amounts of VAMC bonds handled under Resolution no.42 were VND

46.46 trillion (33.59%).

However, the process of implementing Resolution 42/2017 has a number of difficulties include: (i)

Non-performing loan trade has not been active; (ii) There are many shortcomings in the

implementation of the resolution due to the collateral related to disputes, procedures and some other

legal issues; and (iii) Credit institutions have difficulty in identifying information on collaterals.

By 9M.2018, the statistics on 17 listed banks showed that NPL ratio increased slightly to 1.77%

(1.67% at the end of 2017), total amount ofNPLs was VND 77.23 trillion (+ 18.5% ytd). Total

provisions for credit losses recorded VND 68.19 trillion (+ 40.3% ytd), thereby raising the sector's

loan loss ratio (LLR) from 74% to 88.3%. Hence, while the NPL ratio of 17 listed banks tends to

increase significantly in the first nine months of 2018, the improved LLR shows banks' efforts in

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

Jan-1

6

Apr-

16

Jul-

16

Oct

-16

Jan-1

7

Apr-

17

Jul-

17

Oct

-17

Jan-1

8

Apr-

18

Jul-

18

Oct

-18

Bond yield

2Y 3Y 5Y

7Y 10Y 15Y

0.0%

2.0%

4.0%

6.0%

Jan-1

6

Apr-

16

Jul-

16

Oct

-16

Jan-1

7

Apr-

17

Jul-

17

Oct

-17

Jan-1

8

Apr-

18

Jul-

18

Oct

-18

Interbank rate

ON 1W

2W 1M



making provisions which help minimize credit risks.

Source: JSC banks, VCBS summaries

Regulations to ensure the

safety of the system are

monitored closely.

The amendment No.

17/2017/QH 14 for the Law

on Credit Institutions is

applied from January 15th

,

2018.

4. Regulations to ensure the system safety of banks are monitored closely

As of the end of May 2018, according to the SBV, the average CAR of the banking sector was

about 10.4%, insignificantly lower than 10.5% at the end of 2017. State-owned commercial banks

achieved 9.39% in CAR (including 7 banks: Agribank, Vietinbank, Vietcombank, BIDV, CBBank, GP

Bank, Ocean Bank) and still in the overall downward momentum (by the end of 2017 is 9.52%). On

the other hand, average CAR of JSC banks is also on the decline, reaching 11.34%.

The high demand for increasing CAR still appears, especially with the state-owned banks that only

have few options. These banks are trying to raise its own capital although the progress is slower than

other joint stock commercial banks (such as the issuance of tier 2 bonds to improve CAR in short term

or rising capital level which will have long-term impact).

As of May 2018, according to the SBV, the average ratio of short-term capitals for medium and long-

term loans continued to decline strongly. This ratio for state-owned commercial banks was 30.23%

while that of other commercial banks was 31.6%. Under Circular No.16/2018/TT-NHNN, the

maximum requirement for this ratio will decrease from 45% in 2018 to 40% applied from January 01st,

2019.

The ratio of short-term capitals for medium and long-term loans which is low compared to the

SBV’s requirements, need to be maintained at this low level in long term. Therefore, we consider

that the ratio of short-term capitals for medium and long-term loans will continue to remain low in the

near future. Banks will continue to restructure their capital maturities to ensure that they do not exceed

the SBV's requirement.

130%

87%

130%

60%

73%

89% 85%

106%

56% 48%

78%

99%

156%

47% 42%

0%

30%

60%

90%

120%

150%

180%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

ACB BID CTG EIB HDB KLB LPB MBB SHB STB TCB TPB VCB VIB VPB

NPL ratio, LLR of a number of banks at 30.09.2018

NPL Ratio LLR



Source: SBV, VCBS summaries

The amendment No. 17/2017/QH 14 for the Law on Credit Institutions is applied from January

15th, 2018. This amendment confirms the determination of the Government and SBV on the

transparency and close supervision of the banking system to ensure long-term development. On the

other hand, although the bankruptcy of credit institutions is included in the document as a final

compulsory plan, it is also a clear direction of the Government and the SBV in addressing the

weak banks in the system.

Total equity and total profit

before tax of 17 listed banks

in our statistics have grown,

however, business results

are differentiated by

different factors.

5. Business results of banks are diversified over 9M.2018

On 17 listed banks, total equity reached VND 434.51 trillion over the first 9M.2018 (up 16.67%

compared to the end of 2017). Total equity of credit institutions improved significantly. Additionally,

total listed banks’ PBT recorded VND 63.19 trillion (+ 38.9% yoy). Business results of banks are

diversified as follows:

(1) A number of banks continued to maintain high growth rate, mainly due to: (i) Credit growth

accelerated from the beginning of the year instead of only at the end of the year; (ii) Non-

interest income increased sharply depending on each bank, usually in income from service

fees, profit from investment securities trading and recovery from written-off debts; (iii)

Provisions decreased sharply for those banks that have done hanlding NPL process; (iv) NIM

increased as many banks take advantage of demand deposits as a inexpensive channel to

mobilizing.

(2) Another group banks showed lower performance when they were difficult to maintain high

growth rate as the previous year due to: (i) Challenging business envỉonment (because core

credit segments were influenced by industry competition and strong macroeconomic

volatility from mid-2018); (ii) Banks which are in restructuring process; (iii) Banks following

their own strategies to develop business in the long term.

9.39%

11.34%

8%

9%

10%

11%

12%

Jan-1

7

Feb

-17

Mar

-17

Apr-

17

May

-17

Jun-1

7

Jul-

17

Aug

-17

Sep

-17

Oct

-17

Nov

-17

Dec

-17

Jan-1

8

Feb

-18

Mar

-18

Apr-

18

May

-18

CAR ratio

State-owned banks Other JSC banks

30.23%

31.60%

28.00%

31.00%

34.00%

37.00%

40.00%

Short-term capital to mid and long-term

loans ratio

State-owned banks Other JSC banks



No. Bank Credit

growth

Deposit

growth

Net

interest

income

growth

Non-

interest

income

growth

Profit

before

tax

growth

NIM ROE CASA CIR NPL LLR

1 VCB 15% 9.2% 26.4% 43.0% 47.2% 2.70% 21.0% 28.0% 42.3% 1.2% 155.5%

2 BID 11.8% 10.9% 11.3% 51.9% 30.6% 2.80% 16.1% 16.5% 39.0% 1.8% 87.0%

3 TCB 3.8% 13.2% 26.4% 22.5% 60.6% 4.01% 21.7% 22.6% 28.4% 2.1% 77.5%

4 CTG 12.8% 9.7% 10.2% 16.3% 5.0% 2.69% 11.5% 13.8% 38.6% 1.4% 130.4%

5 VPB 9.5% 17.1% 21.7% 49.1% 8.7% 8.89% 21.7% 11.8% 40.8% 4.7% 41.8%

6 MBB 11.2% 5.7% 30.8% 66.5% 50.3% 4.49% 16.2% 32.9% 41.0% 1.6% 106.0%

7 ACB 11.3% 11.0% 22.2% 27.9% 138.3% 3.41% 24.6% 15.3% 45.2% 0.8% 129.6%

8 HDB 15.7% 7.8% 18.5% 33.8% 50.8% 4.02% 15.6% 8.1% 54.3% 1.5% 72.9%

9 STB 13.7% 11.7% 46.9% 32.4% 28.2% 2.15% 5.7% 14.6% 66.7% 3.2% 47.7%

10 EIB -2.7% 1.4% 16.9% 74.0% 148.7% 2.18% 9.2% 13.0% 61.4% 2.1% 59.6%

11 TPB 16.4% -0.2% 41.4% 217.2% 100.0% 3.53% 18.2% 13.4% 52.5% 1.2% 99.1%

12 VIB 13.6% 16.4% 49.7% 37.5% 176.1% 3.67% 21.2% 14.2% 45.9% 2.5% 46.7%

13 BAB 9.9% 11.1% 0.6% 327.9% 20.8% 1.98% 10.4% 1.2% 53.6% 0.7% 169.9%

14 SHB -0.6% 12.6% 18.5% -57.6% 10.1% 2.07% 10.2% 8.2% 54.6% 2.8% 55.7%

15 LPB 14.5% -0.6% -8.1% -27.3% -29.2% 3.06% 10.6% 15.9% 58.1% 1.3% 84.9%

16 KLB 11.0% 5.9% -6.3% 153.8% 16.1% 2.88% 6.4% 2.6% 75.1% 1.0% 89.1%

17 NVB 8.3% 3.1% 6.1% -5.1% 70.0% 1.96% 0.9% NA 98.0% NA NA

Source: Fiin Pro, VCBS summaries

OUTLOOK FOR THE REMAINING OF 2018 AND YEAR 2019

2018 credit growth

expectation is lower than

the previous year, at 14-

15%. 2019 credit growth is

expected to reach over

15%.

1. 2018 credit growth expectation is lower than the previous year, at 14-15%. 2019

credit growth is expected to reach over 15%.

According to Directive no.04/CT-NHNN dated August 02nd

, credit growth in 2018 is forecast at

around 14-15%.In terms of credit structure, it continues to focus on production sectors, especially in

priority areas, large projects according to the Goverment policy. Lending to potential risk areas such

as real estate, securities, and consumption will be tighter control.

Furthermore, if the SBV has not been approved to increase the limitation, banks which have used

up their credit limitation in the first nine months of the year may restructure the credit portfolio

in some directions: (1) Restructuring customer list in accordance with the bank's target; (2) Accepting

group of customer which gives higher NIM to banks; (3) Controlling the real estate, consumption

lending and other potential risk areas. In addition, there is possibility that a small number of banks will

be able to extend their credit limitation by the SBV at the end of 2018.



Source:Annual report of banks, updated until 9M.2018

With expected GDP growth of over 6.5%, inflation facing challenges is still under control, 2019

credit growth is projected to be above 15% which rise higher than that of 2018, credit growth can

be accelerated from the first months of the year in some banks and credit quality continues to be

improved. Credit institutions with good asset quality may obtain higher credit growth. Conversely,

redit institutions that have difficulties in dealing with non-performin loans may have lower growth

rate. Credit will be tightly controlled to ensure the loan quality.

Source: VCBS forecasts

16%

12% 13%

3%

10% 11% 11%

16%

14%

16%

-3%

14% 14% 15%

17%

14%

18%

25%

15% 15%

40%

13%

20%

12%

14%

20%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

VCB BID CTG TCB VPB MBB ACB HDB STB TPB EIB VIB LPB

9M.2018 credit growth of banks

Credit growth 9M.2018 Targeted credit growth by banks Given credit limit

14-15%

> 15%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

0

3000

6000

9000

12000

2013 2014 2015 2016 2017 2018 2019

Credit growth forecast

Total credit (VND trillion) Credit growth



Deposit interest rates may

continue to be under

pressure, while lending

interest rates may be

unlikely to increase in line

with lending rates.

NIM of most banks may

hardly increase in 2019.

2. Deposit interest rates may continue to be under pressure, while lending interest rates

may be unlikely to increase in line with lending rates.

Deposit rates are likely to be under pressure in late 2018 and 2019. Deposit rate in 2019 could create

a new base with a gap of approximately 50 basis points compared to that in 2018. Some main

drivers are: (1) Demand of commercial banks to meet the safety requirements; (2) Significantly

increased inflation pressure; and (3) The possibility that more pressure on VND if Fed decides to raise

USD interest rate.

Additionally, we see that lending rates driven by the Government and SBV are unlikely to

increase. Credit institutions maystructure their loan portfolio and expand their product

offerings to higher yield group.

Interbank rates will go in line with system liquidity. Factors affecting the money market in 2019 are:

(1) seasonal factors; (2) amount of money deposited by the State Treasury in commercial banks and

disbursement progress of public investment; and (3) stability in exchange rate and attracted cash flow

to the Vietnamese market. With the inflation is expected to be somewhat stronger than in 2018 but not

exceed 4.5%, we expect that the regulatory ceiling interest rate for OMO market to be stable at around

4.75%.

Hence, NIM of most banks in 2019 is unlikely to increase due to the following reasons: (1) Deposit

rates are under pressure while lending rates need to keep at a low level to ensure competitive

advantage; (2) Banks need to improve capital structure to meet safety ratios in accordance with

Circular 06 (the short-term capitals for medium-term loan ratio is maximum 40% applied from 2019).

Source: Financial statement of banks, VCBS summaries

Retail credit market still

has room to expand.

Retail credit market still has

room to expand, however,

consumer credit segment is

3. Retail credit market still has room to expand

When the credit segment of for large enterprises has shown signs of saturation, many banks have

begun to shift their focus to the retail market (including individual and small business customers).

Especially for small and medium banks, it is difficult to increase wholesale market share and

compete with large banks in terms of credit size or price policy, therefore developing the retail

segment is a more reasonable choice. State-owned banks have advantage inscale and price policy.

3.41%

1.98%

2.80% 2.69%

2.18%

4.02%

2.88% 3.06%

4.49%

1.96% 2.07% 2.15%

4.01%

3.53%

2.70%

3.67%

8.89%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

9.00%

10.00%

ACB BAB BID CTG EIB HDB KLB LPB MBB NVB SHB STB TCB TPB VCB VIB VPB

NIM of banks

NIM 9M.2018 NIM 2017



noticeable for high risk However, medium and small JSC banks have large customer base, products and services, especially

with individual small businesses and household client groups.

Retail credit market still has room to expand, however, consumer credit segment is noticeable for high

risk. Additionally, we consider in the coming period, more banks will accelerate their handling NPL

process, by making provision for not only NPLs and VAMC, but also hidden loans which are not

clearly reflected in financial statements of credit institutions.

Consumer finance segment has high lending rates and flexibility in the credit process. This segment is

expected to expand in the coming years. However, with large scale and number of consumer finance

companies, industry competition will increase, depending on: (1) Credit market share annualy

maintained by the company, expressed by credit growth, (2) Interest rate competition, and (3)

Information technology. Otherwise, consumer credit is risky because company's risk management and

debt recovery system need to be invested and upgraded, while the company is vulnerable to

macroeconomic factors such as interest rates or exchange rates.

We are aware of that credit institutions which are partially engaged in consumer finance will

benefit from stable macroeconomic conditions, however, they will be more vulnerable in

variable macroeconomic. In this condition, there will be more difficult for consumer finance

company to expand theirlending list, debt monitoring and debt collection might also have

difficulties which make credit risk more difficult to control.

Banks will accelerate their

handling NPL process, by

making provision for not

only NPLs and VAMC, but

also hidden loans in the

future.

4. Sustainable growth goes along with acceleration of handling NPL process

Asset quality is one of the key factors in creating a foundation for the sustainable growth of the

banking industry. As of 9M.2018, many banks had positive actions to deal with NPLs. We consider in

the coming period, more banks will accelerate their handling NPL process, by making provision

for not only NPLs and VAMC, but also hidden loans which are not clearly reflected in their

financial statements.

Accordingly, we believe that group of banks which completes their handling oNPL process will has

significant advantages to expand their business in the long term. Their profit growth is supported by a

lower provision requirement and extraordinary income from debt recovery. On the contrary, group of

banks which is still in the process of self-restructure will need time to meet risk provision requirement,

and therefore profit is also difficult to spike.

1.31% 1.23% 1.72%

1.06%

2.77%

5.77%

3.21%

1.73%

4.84%

8.14%

4.30%

9.46%

3.62%

1.78% 1.30%

1.64%

2.24%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

ACB BID CTG EIB HDB KLB LPB MBB BAB NVB SHB STB TCB TPB VCB VIB VPB

Accrued interest and fee receivable on Loans to customers

2017 9M.2018



Source: Financial statement of banks, VCBS summaries

One of the urgent demands

for credit institutions is

ensuring sufficient capital.

5. Requirement to meet capital adequacy standards and plan of capital increase

According to Circular No. 41/2016/TT-NHNN, the time of application of Basel II for domestic credit

institutions will start from 01.01.2020. Thus, in 2019, banks will need to improve their technology

systems to calculate safety indicators as well as prepare capital to be ready for Basel II. Among

the Basel II indicators, the minimum capital adequacy ratio (CAR) is one of the core requirements. In

order to meet and improve CAR in the long run, it is imperative that many credit instituitions

implement measures to increase Tier 1 capital required. Tier 1 capital can be rose by issuing additional

shares or retained earnings. The issuance of shares to the public or partners will also bring new cash

flow to the market and create growth expectations for banking stocks.

Banks issues equity to foreign investors

Some credit institutions are expected to issue equity to foreign countries in 2018-2019. This will

contribute to the support of the group of bank shares thanks to: (1) the Bank has improved its equity;

(2) Banks are expected to become more transparent when large shareholders are foreign investors,

especially for banks whose quality of debt is difficult to identify and there are many unclear assets; (3)

New cash flow added to the market with great value.

Credit institutions plan to list in near future

In 2019 and the following years, many banks plan to list on OCB, Maritime Bank, or plan to move to

HSX such as VIB, LPB. According to Agribank, the bank has a roadmap to be ready for the first

public offering by 2020.

The listing of credit institutions is not only in compliance with Circular 180/2015/TT-BTC but also an

opportunity for banks and organizations to raise their own capital, to disclose information

transparently and to create favorable conditions.

Merge & Acquisition

According to the document No. 6785/NHNN-TTGSNH on September 07th

, 2018, the State Bank of

Vietnam has approved the policy of merging PGBank into HDBank. In case two banks can agree on

the agreements, integrate the financial accounting system and complete the legal procedures for the

merger, HDBank will benefit from the expansion of scale and financial resources, especially retail and

service activities due to larger distribution network.

Predicted results of

business of listed banks in

2018 and 2019 continue to

be diversified.

6. Predicted business results of listed banks in 2018 and 2019 continue to be diversified

By the end of 2018, most banks will be under pressure to restructure their credit portfolio to: (1)

ensure credit growth in line with credit limit given by the SBV and (2) accelerate handling NPL

process for banks which is planning to turn to profitability for the next years. For the fourth quarter

and the whole of 2018, we expect earnings of banks will be as follows:

(1) Group of banks continues to break profitability compared to the same period last year:

Growth of business results in 2018 will come from stable interest income, improved service

income, and extraordinary income from reinvestments and debt recovery.

(2) A number of banks which used up their credit room in the first 9 months may beallowed to

increase their credit limit by the SBV in the last months of the year. As a result, the amount

of increased credit limit will support banks to maintain high credit growth for the last few

months of the year, this profit will be well reflected in the last months of 2018 and 2019.



(3) Another group of banks still has difficulties in handling NPLs: These banks will continue

their restructuring process and make a large amount of provision for credit losses.

Source: Financial statements of banks, VCBS summaries

In 2019, macroeconomic scenario may be voltality include: (1) Deposit interest rates will be under

pressure and lending interest rates may be hard to increase sharply, (2) Exchange rate and system

liquidity are under control control of the SBV. Results of business of listed banks in 2019 continue

to be diversified. Furthermore, NIM of most banks is difficult to expand and pretax profit is

difficult to maintain high growth rate as it has performed in 2018:

(1) Group of banks which completed their handling NPL process still has room to growth. Their

profit will significantly grow as they no longer have to make a large amount of risk provision

for credit losses. Non-interest income is mainly contributed by fee income and provision

reversal or debt recovery.

(2) The unpredictable macroeconomic conditions will be one reason why banks that have a part

of their business depending on consumer finance segment may find it difficult to maintain a

strong growth rate. Under an increasing interest rate pressure, consumer finance companies

still need to maintain their lending market share and NIM at an acceptable level. Hence, we

believe that these companies will need time to make adjustments to their risk management

and debt collection system, credit products and target customers, then business activities may

become more optimistic in the last months of the year but growth rate can not as high as in

previous years.

(3) Some other banks will continue to restructure and make a large amount of provision for their

NPLs. A large amount of non-performing loan can limit the credit growth and significantly

reduce the profit of credit institutions. At the same time, these banks will also have to

prepare themselves for long-term business direction, products, services and technology.

VCBS expects that there are some of the banks in this group which make significant steps in

2019, and therefore will have a sustain basis for business growth from 2020.

11,683

7,254 7,596 7,774

6,125 6,015 4,776

2,884

1,315 1,614 1,136 1,720

1,014

88%

78% 78%

57%

88% 84%

73% 72% 73% 71%

86% 85%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

VCB BID CTG TCB VPB MBB ACB HDB STB TPB EIB VIB LPB

Profit before tax of banks

PBT 9M.2018 (VND bn) Completed year target



RECOMMENDATION

Banking statistics in 9M.2018 and Recommendation (Unit: VND bn)

Bank Total

assets

Total

equity PBT NIM ROE NPL LLR

Asset quality

rating

Bussiness

results

rating

Recommendati

on

VCB 995,111 61,526 11,683 2.70% 21.00% 1.18% 155.47% High Increasing Outperform

ACB 312,778 19,519 4,776 3.41% 24.56% 0.84% 129.55% High Increasing Buy

MBB 343,850 33,208 6,015 4.49% 16.16% 1.57% 105.95% High Increasing Buy

TCB 311,796 49,481 7,774 4.01% 21.71% 2.05% 77.50% High Increasing Outperform

VPB 296,216 31,987 6,125 8.89% 21.65% 4.70% 41.75% Low Stable Underperform

HDB 199,380 15,955 2,884 4.02% 15.61% 1.50% 72.89% Low Stable Underperform

VIB 132,507 10,119 1,720 3.67% 21.23% 2.50% 46.65% Average Increasing Outperform

TPB 126,912 10,202 1,614 3.53% 18.24% 1.24% 99.06% Average Increasing Hold

BID 1,268,413 53,720 7,254 2.80% 16.11% 1.76% 87.00% No rating Stable Not available

CTG 1,172,517 69,915 7,596 2.69% 11.48% 1.36% 130.43% Average Stable Outperform

LPB 167,328 10,067 1,014 3.06% 10.61% 1.32% 84.92% No rating Stable Hold

SHB 299,698 16,054 1,466 2.07% 10.19% 2.75% 55.71% Low Stable Underperform

EIB 146,991 15,187 1,136 2.18% 9.17% 2.07% 59.63% Low Stable Underperform

STB 403,602 23,781 1,315 2.15% 5.65% 3.18% 47.65% No rating Stable Not available

BAB 89,676 6,876 583 1.98% 10.36% 0.71% 169.86% No rating Stable Not available

KLB 39,452 3,698 222 2.88% 6.40% 1.02% 89.11% No rating Stable Not available

NVB 69,505 3,210 17 1.96% 0.88% NA NA Low Stable Underperform

Source: Fiin Pro, VCBS forecasts

We keep our recommendation with ACB, MBB thanks to their good fundamentals and bright prospects in the near future. Main

risks that may arise when investing in banking stocks come from macroeconomic volatility factors, interest rate and exchange rate

risk.

ACB

Business results: As of 9M.2018, ACB's PBT continued to grow strongly, reaching VND4,776

billion (+ 2.38 times yoy, fulfilling 84% of the year target). Credit growth was 221 trillion (+

11.3% ytd), continues to focus on the retail segment. Deposit growth came to VND272 trillion, (+

10% ytd). The CASA rate is stable at 16%, higher than the banking sector average.

NPLs reached VND1,850 billion (+ 33% ytd), group 5 loans reached VND1,265 billion (+ 80%

ytd). The NPL ratio at 9T2018 was recorded at 0.84% (slightly up from 0.7% in 2017).

Outlook: We estimate that ACB will reach VND6,433 billion PBT in 2018 (+ 2.4 times yoy).

ACB's PBT in 2019 can reach VND7,341 billion (+ 14% yoy).

Unit: VND bn 2017 2018F Growth 2019F Growth

Net interest income 8,458 10,407 23.0% 11,581 11.3%

Total operating income 11,439 13,723 20.0% 15,805 15.2%

Provision (2,565) (1,075) -58.1% (1,220) 13.5%

PBT 2,656 6,433 142.2% 7,341 14.1%

NIM 3.49% 3.56% 3.40%



ROE 14.08% 27.70% 24.43%


The main drivers of growth were: (i) strongly increasing interest and non-interest income; (ii)

under control asset quality and high LLR; (iii) extraordinary income from debt recovery; and (iv)

digital banking and information technology.

Recommendation: ACB has good asset quality and has completed the provisioning for large

NPLs (including loans for group of 6 companies). The main growth drivers for ACB in coming

years come from its business operations and debt recovery. We maintain our BUY

recommendation with ACB’s target price of VND 38,541 per share.

(Detail forecast in Table 1 – Appendix)

(Detail in ACB quick report 31.10.2018)

MBB Business results: As of 9M.2018, PBT of MBB reached VND6,014 billion (+ 50.3% yoy,

fulfilling 88% of the full year target). Loans to customers reached VND 205 trillion (+ 11.2%

ytd), deposit growth and valuable papers reached VND238 trillion (+ 5.5% ytd).

NPL ratio was 1.57% (a sharp increase from 1.2% at the end of 2017 and 1.3% at the end of

Q2.2018). MBB’s asset quality is noteworthy as the bank's NPL ratio rose rapidly and should be

closely monitored in the coming sessions. We believe that this can be acceptable as MBB

continues to set up a high amount of provision, maintaining LLR of 106% to cover the bank's total

NPLs.

Outlook: We maintain our estimation in 2018 for MBB’s PBT at VND7,790 billion (+ 69% yoy,

surpassing the bank’s full year target 15%). In 2019, PBT is estimated at VND9,223 billion (+

18.4% yoy). The main drivers for growth include: (i) Credit activity focused on the growing retail

market; (ii) Increasing net fee income; (iii) Under controlled assets quality; and (iv) Digital

banking technology applying to many business activities.

Unit: VND bn 2017 2018F Growth 2019F Growth

Net interest income 11,219 13,865 23.59% 15,974 15.21%

Total operating income 13,867 18,371 32.48% 20,954 14.06%

Provision 3,252 3,141 - 3.43% 3,213 2.30%

PBT 4,616 7,790 68.77% 9,223 18.40%

NIM 4.19% 4.44% 4.59% ROE 13.0% 19.9% 20.3%


Recommendation: MBB is one of the JSC banks that have a dynamic business model. The bank

focused most of its retail business operations and also completed its risk provisioning for VAMC

special bond. We maintain our BUY recommendation with MBB’s target price of

VND27,470 per share.

(Detail forecast in Table 1 - Appendix)

(Detail in MBB update report 23.11.2018)

http://vcbs.com.vn/vn/Communication/GetReport?reportId=6014

http://vcbs.com.vn/vn/Communication/GetReport?reportId=6038



APPENDIX

Forecast of recommended banks

Table 1: ACB’s forecast business results

Income Statement

As of 31/12

Unit: VND billion 2015 2016 2017 2018F 2019F

Interest income 14,082 16,448 20,320 24,394 28,171

Interest expense -8,198 -9,556 -11,862 -13,987 -16,590

Net interest income 5,884 6,892 8,458 10,407 11,581

Non-interest income (expense) 337 671 2,981 3,316 4,224

Total operating income 6,220 7,563 11,439 13,723 15,805

Operating expenses -4,022 -4,678 -6,217 -6,215 -7,244

Operating profit (pre-provision) 2,199 2,885 5,222 7,508 8,561

Provisions (net of reversals) -1,186 -1,218 -2,565 -1,075 -1,220

Profit before taxation 1,013 1,667 2,656 6,433 7,341

Taxation -286 -342 -538 -1,287 -1,468

Profit after taxation 727 1,325 2,118 5,146 5,873

Minority interest 0 -3 0 0 0

Attributable to equity shareholders 727 1,322 2,118 5,146 5,873

Table 2: MBB’s forecast business results

Income Statement

As of 31/12

Unit: VND billion 2015 2016 2017 2018F 2019F

Interest income 13,538 15,552 19,876 24,031 27,376

Interest expense -6,219 -7,574 -8,657 -10,166 -11,402

Net interest income 7,319 7,979 11,219 13,865 15,974

Non-interest income (expense) 1,453 1,876 2,648 4,505 4,980

Total operating income 8,772 9,855 13,867 18,371 20,954

Operating expenses -3,449 -4,175 -5,999 -7,440 -8,518

Operating profit (pre-provision) 5,323 5,681 7,868 10,931 12,436

Provisions (net of reversals) -2,102 -2,030 -3,252 -3,141 -3,213

Profit before taxation 3,221 3,651 4,616 7,790 9,223

Taxation -709 -767 -1,125 -1,705 -2,041

Profit after taxation 2,512 2,884 3,490 6,085 7,182

Minority interest 16 -28 -29 -29 -29



DISCLAIMER

This report is designed to provide updated information on the fixed-income, including bonds, interest rates, some other related. The VCBS analysts

exert their best efforts to obtain the most accurate and timely information available from various sources, including information pertaining to market

prices, yields and rates. All information stated in the report has been collected and assessed as carefully as possible.

It must be stressed that all opinions, judgments, estimations and projections in this report represent independent views of the analyst at the date of

publication. Therefore, this report should be best considered a reference and indicative only. It is not an offer or advice to buy or sell or any actions

related to any assets. VCBS and/or Departments of VCBS as well as any affiliate of VCBS or affiliate that VCBS belongs to or is related to

(thereafter, VCBS), provide no warranty or undertaking of any kind in respect to the information and materials found on, or linked to the report and

no obligation to update the information after the report was released. VCBS does not bear any responsibility for the accuracy of the material posted

or the information contained therein, or for any consequences arising from its use, and does not invite or accept reliance being placed on any

materials or information so provided.

This report may not be copied, reproduced, published or redistributed for any purpose without the written permission of an authorized representative

of VCBS. Please cite sources when quoting. Copyright 2012 Vietcombank Securities Company. All rights reserved.

CONTACT INFORMATION

Tran Minh Hoang Mac Dinh Tuan Ngo Phuong Anh

Head of Research

[email protected]

Head of equity research team

[email protected]

Equity Analyst

[email protected]

DISCLAIMER



VIETCOMBANK SECURITIES COMPANY

http://www.vcbs.com.vn

Ha Noi Headquarter Floor 12th & 17th, Vietcombank Tower, 198 Tran Quang Khai Street, Hoan Kiem District, Hanoi

Tel: (84-4)-39366990 ext: 140/143/144/149/150/151

Ho Chi Minh Branch Floor 1st and 7th, Green Star Building, 70 Pham Ngoc Thach Street, Ward 6, District No. 3, Ho Chi Minh City

Tel: (84-28)-3820 8116 Ext:104/106

Da Nang Branch Floor 12th, 135 Nguyen Van Linh Street, Thanh Khe District, Da Nang City

Tel: (+84-236) 3888 991 ext: 801/802

Nam Sai Gon Transaction Unit Floor 3rd, V6 Tower, Plot V, Him Lam Urban Zone, 23 Nguyen Huu Tho Street, Tan Hung Ward, District No. 7, Ho Chi Minh

City

Tel: (84-28)-54136573

Giang Vo Transaction Unit Floor 1st, Building C4 Giang Vo, Giang Vo Ward, Ba Dinh District, Hanoi

Tel: (+84-24) 3726 5551

Tay Ho Transaction Unit 1st & 3rd Floor, 565 Lac Long Quan Street, Tay Ho District, Hanoi.

Tel: (+84-24) 2191048 (ext: 100)

Can Tho Representative Office Floor 1st, Vietcombank Can Tho Building, 7 Hoa Binh Avenue, Ninh Kieu District, Can Tho City

Tel: (+84-292) 3750 888

Vung Tau Representative Office Floor 1st, 27 Le Loi Street, Vung Tau City, Ba Ria - Vung Tau Province

Tel: (+84-254) 351 3974/75/76/77/78

An Giang Representative Office Floor 7th, Vietcombank An Giang Tower, 30-32 Hai Ba Trung, My Long Ward, Long Xuyen City, An Giang Province

Tel: (84-76)-3949843

Dong Nai Representative Office Floor 1st & 2nd, 79 Hung Dao Vuong, Trung Dung Ward, Bien Hoa City, Dong Nai Province

Tel: (84-61)-3918815

Hai Phong Representative Office Floor 2nd, 11 Hoang Dieu Street, Minh Khai Ward, Hong Bang District, Hai Phong City

Tel: (+84-225) 382 1630

Binh Duong Representative Office Floor 3th, 516 Cach Mang Thang Tam Street, Phu Cuong Ward, Thu Dau Mot City, Binh Duong Province.

Tel: (+84-274) 3855 771

http://www.vcbs.com.vn/

banking industry report 2019 - vcbs

Documents