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Banking Sector 2025 - OVERCOMING THE STORMS

The banking sector outlook for 2025 is expected to have more positive factors after a challenging year 2024, particularly in terms of managing bad debts. The PBT of the banks under our coverage is projected to grow by 11.5% in 2024 and show a more optimistic increase of 16.6% in 2025. The main driver of profit growth will come from strong credit growth, fueled by the economic recovery, alongside a gradual reduction in credit costs across the industry. However, the NIM of most banks will remain under pressure due to a slight increase in funding costs (30-50bps), while lending yield competition will persist. On the other hand, the risk of NPLs will continue to rise after Circular 02 expires on January 1, 2025, as there is a possibility of "unwanted" NPLs arising (due to differences in debt classifications of the same customers at different banks). This will lead to the need for additional provisioning beyond the plan.

We believe the downside risk to sector valuations in 2025 is limited as earnings and book value continue to grow, while ROE and asset quality have significant room for improvement. Additionally, the “Vietnam stock market reclassification to emerging market“ story will be an effective catalyst for large-cap stocks such as banks. We favor banks that have advantages in CASA and/or solid asset quality, such as CTG, VCB, and ACB, because they are better able to withstand market interest rate fluctuations and more easily capitalize on favorable market conditions to expand NIMs compared to other banks. Meanwhile, credit cost pressures will also be more limited in these banks, as they have fully booked additional provisions for restructured debts.