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Vietnam bank stocks downgraded on expectations of lower earnings

By Minh Son   December 11, 2018 | 05:59 pm PT
Vietnam bank stocks downgraded on expectations of lower earnings
Employees work at a HDBank office in Ho Chi Minh City, Vietnam. Photo by VnExpress/Anh Tu
Securities companies have reduced target prices of bank shares by 10-20 percent, based on result of lower income forecasts.

Viet Capital Securities (VCSC) recently lowered share price expectations on a series of bank stocks compared to numbers it had published earlier.

According to VCSC’s latest report on HCMC Development Bank (HDBank), the securities company has set a target price of VND31,800 ($1.37) per share, down nearly 20 percent on its previous prediction.

The main reason for this adjustment is that credit growth is forecast to be lower for HD Saison, a financial company that is a joint venture between HDBank and Japanese securities group Credit Saison. The target price was also reduced as a result of falling loan yields at the parent company.

At the time of VCSC’s first report for HDB shares in June 2018, loan yields at HDBank were already falling. Loan yield for the first 9 months of the year was 12.1 percent, lower than the 12.6 percent in 2017.

The shares of BIDV, Vietnam's biggest bank by assets, are down by 15 percent in the latest publication from the last forecast.

The securities company lowered its 2018 and 2019 earnings forecast for BIDV as a result of net interest income forecasts showing a decline of 8.7 percent and 11.7 percent respectively.

At the same time, the company also raised provision costs for the bank by 5.5 percent this year and 4.5 percent for the next.

"We observed that debt settled, as well as accrued interests and receivables in the first 9 months of the year rose, showing that asset quality could go down at the bank," said Dinh Phuong Anh, an analyst with VCSC said.

For other banks, although recommendations remain positive, target prices have also been lowered by between 10 and 20 percent.

The shares of Vietcombank (VCB), the third largest bank by assets, are down to VND64,000 ($2.76) in the latest publication, down 11 percent from the last forecast. The estimated price of Techcombank (TCB) stocks is also down 20 percent to VND34,600 ($1.48) per share. 

The Ho Chi Minh City Securities Corporation (HSC) recently lowered its forecasts of Eximbank (EIB) shares. The target price of EIB was adjusted down from VND18,000 ($0.78) to VND14,700 ($0.63) as its 9 months performance report showed restructuring delays.

According to many experts, the performance of the banking sector is unlikely to maintain the strong growth of the last 3 years.

HSBC Vietnam CEO Pham Hong Hai said that profitability of the sector will peak in 2018 and gradually fall later. The central bank may not want to maintain such high credit growth in the near future, and could work to bring it down, he explained.

Vietnam’s credit growth in the first 11 months of this year was 15.3 percent, according to the National Financial Supervisory Commission.

The country’s banking sector posted an estimated 18.17 percent loan growth in 2017. It has targeted growth of 17 percent this year.

In addition, an important factor that will affect the profitability of banks in the following years is the imminent official application of Basel II, which will impact on the banks’ strategies.

The second Basel Accords, or Basel II, prescribe capital of 8 percent of risk-weighted assets for all financial institutions, including in Vietnam, to cover operational risks.

By this time, banks will not be able to rely so much on credit income, but have to move to other activities. Profit will most likely fall to levels below this year, he said.

Hai said that from 2019 onwards, bad debt may re-emerge as a problem for banks after the recent credit growth and the instability of the global financial markets. This was another reason banking profits will likely see a downward trend next year, he added.

State Bank Governor Le Minh Hung said recently that bad debts and potential bad debts of the sector had amounted to 8.61 percent of total credit by the end of September.

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