Securities firms cautiously optimistic about banking outlook for 2023

SSI Securities Research said in its latest strategic report that government policy will be a key factor in guiding the operation of the banking system in 2023, with the focus still on the corporate bond and real estate markets.

According to SSI Securities Research, policy trends will determine whether the scales tip in a positive or negative direction. In particular, policies that encourage liquidity and a more stable interest rate may be good for the banking industry.

If the State Bank of Vietnam provides liquidity support schemes and manages operational risk in a flexible way, the liquidity situation may be better than it was in the second half of 2022.

But the analysis team said that domestic interest rates won't go down until the U.S. Federal Reserve (FED) stops raising interest rates, which is likely to happen in the second half of 2023.

Meanwhile, experts from VNDirect Securities said they remain upbeat about the outlook for the banking sector, saying that while they are a bit cautious about the first half of the year, they are more optimistic about the second half.

The experts added that the series of regulatory interest rates in the second half of 2022 announced by Vietnam’s central bank may negatively impact the net interest margin (NIM) while capital costs increase and lending interest rates could hardly keep up.

In addition, the tensions in the corporate bond and real estate markets may negatively affect the quality of assets and liquidity of banks.

But in the second half of this year, VNDirect Securities said that things could be better if interest rates and exchange rate tensions are eased and liquidity problems are partly solved by public investment.

VNDirect Securities thinks that banking's profit growth will slow to 10%–11% in 2023, down from 32% in 2022. This is because credit growth will slow, the net interest margin (NIM) ratio will shrink, and credit costs will go up.

This growth rate is about the same as what SSI Research is predicting.

Based on the baseline scenario, the SSI analysis team predicts that its tracked bank groups could make a profit of 13.7% for 2023.

This is half of the average growth rate recorded in the 2017-2021 period (28%), and more than the rate from 2014 to 2015 (11.3%).

In a more dire situation, the industry might only grow by about 10% this year.

SSI said that segment by segment the growth of profits at state-owned banks (which is expected to be 18.4%) may be higher than the growth of profits at private commercial banks (10.8%) because the outlook for NIM is better and there aren't as many loans to the bond and real estate markets.

From an investment point of view, VNDirect said the industry currently has the lowest valuation level in history (1.1 times P/B), facilitating an attractive investment opportunity.

The banking system is much better than it used to be, and long-term economic growth still helps banks the most.

In the current situation, VNDirect gives the most weight to banks that can handle changes in the economy.

But when the storm is over, it is expected that banks with low valuations, strong capital buffers, and a lot of real estate loans and corporate bonds will do well.