Vietnam banking sector – 2020 review and 2021 outlook

Vietnam banking sector note – 2020 review and 2021 outlook.


2020 review:

The COVID-19 outbreak has caused unfavorable impacts on Vietnam’s economy. However, the banking sector performed well, illustrated by a 15.1% growth in the overall FY2020 net profit, thanks to:

  • a strong rebound of credit demand in Q4/2020, which boosted full-year credit growth to 12.1% y/y.
  • a 15.3% growth in the non-interest income.
  • better operational efficiency proven as Cost to income (CIR) ratio reduced from 38.1% in 2019 to 35.6% in 2020.
  • supportive policy from the government which allows to retain the current classification of loans and avoid a sudden spike in provision expense.

Asset quality also showed signs of improvement in H2/2020. For instance, the NPL ratio dropped from 1.6% in June 2020 to 1.2% in Dec 2020. Overall, the 2020 result was better than our expectation due to higher credit growth.

2021 outlook:

Going forward, we issue our NEUTRAL rating for Vietnam’s banking sector based on 3 metrics:

  • Income growth: We expect a strong result in all major income streams in 2021. Firstly, the net interest margin (NIM) is likely to bounce back thanks to strong credit growth and low funding cost. Similarly, fee income is beneficial from the rebound of bancassurance and payment services.
  • Asset quality: We retain our neutral view on the asset quality of the sector. There were positive developments in H2/2020, but we think the provisioning pressure remains in place as outstanding loans impacted by COVID-19 did not change much. However, we think the sector is well prepared for this, given both NPL and loan loss provision ratios improved significantly since June 2020.
  • Valuation: H2/2020 was a very positive period for banking stocks thanks to strong money flow, mostly from local investors. We are still keen on our preference for private banks rather than State-owned banks due to lower valuation, more active business strategies and better earnings outlook.

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