Viet Dragon Securities Company (VDSC) has raised its earnings forecasts by a median 2% for the Vietnamese banking industry for the fiscal year of 2018f and 4% for 2019.
ACB leads the upgrades with a 36% increase in VDSC's 2018 EPS forecast, mostly driven by lowering the loan impairment charges to 39 basic points of loans (since the asset clean-up is now largely completed). Moreover, VDSC expected that ACB can record a large amount of provision reversals in 2018 and 2019 from written-off legacy bad debts.
Moreover, VDSC increased 2018 EPS for HDBank by 6%, mainly because of lower loan impairment charges and lower cost to income ratio. VietinBank is the recipient of the largest cut in VDSC's 2018 EPS, due to both reduced margin and increased loan impairment charge projections.
VDSC also raised the 2020-22 forecasts by 7-13%, with BIDV being the key beneficiary. The key reasons for this more positive assessment include NIM expansion and higher growth in services income, while the ratio of cost of operating income and provisions to operating income remains stable.
Additionally, it is expected that BIDV's NIM can reach 2.9% in 2018-22, driven by fast growth in retail lending, which currently accounts for 31% of total loan book and VDSC expected to reach 40% by 2022. At 12-13% market share in lending, the extended NIM will provide high growth in net interest income.
Credit growth remains robust
VDSC expected the credit growth of its Vietnamese bank universe to remain robust, at 16% median in 2018 (19% in 2017), followed by 15% in 2019, with retail lending growing faster than corporate lending.
The State Bank of Vietnam (SBV) recently affirmed that, aside from some exceptions, it will not consider adjusting credit limits for commercial banks for 2018. This means that banks with aggressive credit growth in the first half of 2018 will need to slow down in the second half.
Within VDSC's coverage, affected banks include HDBank (+15% year-to-date, 81% of SBV quota), ACB (+12%, 79%), Vietcombank (+12%, 75%) and MB (+11%, 71%). Meanwhile, banks with more modest growth in the first six months of 2018, such as BIDV (+7%, 46%) and VietinBank (+8%, 56%) should be able to catch up in the second half of 2018.
SBV has granted 14-15% credit growth in 2018 for most banks, while it is targeting 17% growth for the whole system for the year. As such, additional quota can still be given in some "special cases". These include banks participating in the restructuring of weak financial institutions.
Within VDSC's coverage, Vietcombank (which is supporting Vietnam Construction Bank), VietinBank (which supporting OceanBank and Global Petroleum Bank) and HDBank (pending integration of Petrolimex Group Bank) are candidates for these special cases, according to VDSC.
However, VDSC expected that state-owned banks' generally weaker capital is a key factor that could potentially hold back some of their volume growth potential. Vietcombank (6.2% equity/asset ratio in the January - June period) has already stated that it is not planning to grow its credit portfolio more than the 15% SBV quota.
