Banks stocks set for strong growth in 2021

While a lingering Covid-19 pandemic has set stage for a difficult economic year in 2021, many securities firms remain positive regarding the banking sector’s outlook following a strong performance last year.

Transactions at a branch of LienVietPostBank in Hanoi. Photo: Cong Hung.

SSI Securities Corporation in its latest outlook report suggested the average pre-tax profit of listed banks on the stock market would grow by 21% year-on-year in 2021. Of which, pre-tax profits of state-owned commercial banks are expected to grow by 30%, while those of private commercial banks would be at 17.2%.

“Strong growth in net interest income from credit expansion and improved net interest margin (NIM) would be the key factor for such bright outlook,” said the SSI in a note.

Given an estimated credit growth of 12-13% year-on-year in 2021, the SSI expected the net interest income of the banking sector to expand by 15%.

Meanwhile, banks would continue to benefit from cheap capital cost as interest rates for mobilizing capital were cut by 2-2.5% in 2020.

“The rate is expected to stay unchanged in the first half of 2021 and then slightly increase in the final half of the year, thanks to high credit demand,” stated the SSI.

From a similar view point, BIDV Securities Company (BSC) expected the sector’s pre-tax profit to witness strong growth of 28% in 2021, mainly thanks to its estimated credit growth of 14%.

For this year, VNDIRECT Securities Company said banks would be the first to enjoy local economic rebound, especially with higher credit growth and improved NIM.

VNDIRECT expected banks stock to soon return to their value in pre-Covid-19 period, after having increased in range of 32-85% since its rock-bottom last March.

In a more detailed look into the sector, Vietcombank Securities Company (VCBS) suggested major state-owned banks such as Agrinbank, Vietcombank, BIDV or Vietinbank, would be under pressure to lower lending rates as there has been no sign of the State Bank of Vietnam (SBV), the country’s central bank, to change its policy rates.

Therefore, these banks’ NIM, which had already been declined in 2020 against the previous year, are unlikely to fully recover in 2021.

In contrast, private banks such as ACB, MB Bank, Techcombank, VP Bank, TP Bank or VIB are predicted to post high growth rate in profit, as they are less affected by pressure to cut lending rates.

The SBV set a credit growth target of 12% for 2021, around the same level of the estimated rate of 11-12% of last year.

In 2020, the SBV cut its interest rate caps four times, the moves which have encouraged commercial banks to provide cheaper loans.

Accordingly, the refinancing interest rate is lowered from 4.5% per annum to 4%, rediscount rate from 3% to 2.5%, overnight interest rate from 5.5% to 5% and interest rate via OMO from 3% to 2.5%. 

The SBV also lowered the interest rate ceiling to 4% annually from 4.25% for deposits with maturities of one month to less than six months.