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Banking Sector - On the bumpy track

• In Q3/23, a decline in broad-based profit growth was observed across most banks, with the industry's TOI growth (calculated based on 27 listed banks) recording a flat performance. Among the groups, state-owned banks showed the most positive results, with an average YoY growth rate of 8%, driven by the growth of VCB and CTG as these two banks effectively controlled provision expenses. Meanwhile, Tier 1 banks experienced a significant decline in NIM, and Tier 2 banks faced pressure on provisioning at high levels.
• The industry's NPL continued to rise to 2.24% (+16 bps compared to the previous quarter). However, there were differences between bank groups, with state-owned banks showing signs of a gradual reduction in the formation of non-performing loans, while the deterioration of asset quality for private banks continued, especially as the average and low- income customer segments were heavily affected by signs of economic slowdown. The total outstanding loans (principal and interest) in Circular 02/2023 increased sharply from VND 96 trillion (USD 4,067 mn) at the end of July to VND 158.6 trillion (USD 6,721 mn) (accounting for 1.24% of credit share) as of October 31.
• We also anticipate a more favorable outlook for Net Interest Margin (NIM), supported by recent signals of interest rate cuts as the industry's deposit interest rates have decreased since March, reaching lower levels after the pandemic. This move is expected to officially alleviate pressure on mobilization costs as demand deposits at high levels in Q4/2022 officially mature, providing a favorable premise for balancing NIM and completing the bottoming-out process. However, the recovery potential of NIM needs to be considered in light of several factors.
• After some bottlenecks related to real estate and corporate bond markets were eased to protect the banking system, bank stock prices rebounded to an average level over the past 10 years. However, the deceleration in the economic picture for 2023 has brought bank stock prices back to below 1 standard deviation. Therefore, despite existing challenges, we believe this is an attractive valuation for long-term investors to invest in some bank stocks with good asset quality to overcome the difficult period and capitalize on the recovery