Three growth drivers for the banking sector in 2024

Three profit growth drivers for Vietnam's banking sector

In a newly released banking sector report, Vietcombank Securities (VCBS) identified three profit growth drivers for the banking system in the near future: optimizing capital costs, increasing non-interest income, and optimizing operating costs.

Specifically, regarding capital cost optimization, VCBS suggests that in the context of increasing pressure on deposit interest rates, private banks with advantages in non-term deposits (CASA) and flexibility in fundraising activities (with a low dependence on customer deposits) will have significant potential to optimize capital costs, thereby improving profits.

Regarding non-interest income, analysts expect some banks to record exceptional income from upfront fees of bancassurance contracts, profits from the sale of subsidiaries, or recovery of written-off bad debts.

In terms of optimizing operating costs, VCBS believes that banks will continue to push digital transformation, enhance management efficiency, and reduce operating costs to maintain profitability. However, the report also notes that investment costs in technology are still on a strong upward trend to increase competitiveness and comply with stricter new regulations on security and safety in payment activities.

Diverse prospects

Analysts predict that bank profits will grow by about 10% in 2024, but the outlook will be diverse. Regarding credit prospects, VCBS expects credit demand to accelerate in the second half of 2024 as low interest rates stimulate loan demand and the economy recovers. Accordingly, the annual credit growth rate is forecast to be 12-13%.

VCBS believes that credit growth drivers include active production and export activities, promoting public investment disbursement, especially key projects with high spillover effects such as infrastructure investment projects and a clearer recovery in the real estate market from the second half of 2024, leading to credit growth in segments like real estate business loans, construction, and home purchase loans.

VCBS forecasts that the net interest margin (NIM) of banks will remain flat in Q2 and Q3, then face pressure to narrow in Q4 as deposit interest rates rise from their lowest point. Loan interest rates are expected to remain flat, while deposit interest rates increase. Deposit interest rates will slightly increase by 30-50 basis points in the next two quarters, with pressure likely increasing in Q4/2024. Annual deposit interest rates may rise by 50-100 basis points, while loan interest rates are expected to stay flat this year and may slightly increase from late 2024 to early 2025.

VCBS also believes there will be a differentiation in the potential to expand NIM, favoring banks with advantages in fundraising activities (high CASA ratio, diversified capital sources through the issuance of valuable papers, and foreign syndicated loans).

Additionally, banks with good asset quality, a customer base with a quick debt repayment recovery, or the ability to increase the proportion of retail loans are expected to expand NIM. Regarding asset quality, VCBS suggests that bad debt pressure will remain high in the first half of the year but is likely to gradually ease with the economic recovery.

Analysts suggest there will be a differentiation among banks, with banks having good asset quality recording manageable levels of bad debt and restructured debt, while banks with a high proportion of corporate credit (including corporate bonds) and low bad debt coverage ratios may face high bad debt risks and increased provisioning pressure in 2024-2025.

Profit growth around 10%

VCBS maintains its forecast of approximately 10% pre-tax profit growth for the entire banking sector in 2024, with varied profit outlooks among different groups of banks. Additionally, VCBS assesses that the investment outlook for banking stocks is currently market-appropriate. The sector's P/B valuation is about 12% lower than the 5-year average.

Analysts also suggest that long-term investment consideration should be given to banks with good asset quality and superior growth rates compared to the sector, including ACB, MB, MSB, OCB, Sacombank, Techcombank, TPBank, and VIB.

Source: vietnambiz

Compiled by VBI