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Vietnam Banking Sector – 2022 Review and 2023 Outlook
What happened in 2022?
- Robust earnings growth (+35.4%) was backed by strong net interest income growth (+21.8%), fee income growth (+16.7%), and retracted provision expenses (-3.2%). Net interest income (77% of total operating income) was supported by strong credit growth (+14.5%) and a slight NIM expansion (+20bps). Fee income growth (12% of total operating income) was driven by credit card and bancassurance sales. Furthermore, thanks to normalized provision expenses post-COVID, net profit grew faster at 35.4% y/y.
- Notable events in 2022 occurred late in the year. Firstly, the State Bank of Vietnam (SBV) raised policy rates by 200bps, back to pre-COVID levels, to support the local currency, VND. Secondly, investigations into misuse of bond issuance proceeds have brought the corporate bond market to a halt with very little issuance in Q4, with the high point of this being when Chairwoman of Van Thinh Phat group was arrested. A few days later, Saigon Commercial Bank (SCB) was placed under special supervision.
- The above events raised concerns regarding banks’ asset quality, driving bank stock prices down. The NPL ratio of the proxy banks was 1.3% at the end of 2022, though we have seen a deterioration in Q4, with rise in NPLs, lower loan loss provision ratios, and higher Group 2. All combined with the ongoing aggressive anti-corruption campaign have pushed many bank stocks to trade at, or below their book values.
What we expect in 2023: mild earning growth on increasing NPL
- Interest rates are to stay high, but liquidity is less tight. We expect the SBV to raise policy rates by 50bps in H1/2023. However, liquidity of the banking system will improve as we foresee less pressure on the FX side, and a push in public spending. Thus, although deposit rates may stay high, they will unlikely increase with SBV policy rate increases. We forecast credit and deposits to grow 13% and 14% respectively in 2023.
- Projected NPL to 1.9% in 2023. State-owned Commercial Banks (SOCBs) will have less provisioning pressure than private banks thanks to their stronger customer profiles. Private banks may see faster increases in NPLs due to higher exposure to retail, SME, and the real estate sector. Yet, under our scenario analysis, Vietnamese banks have sufficient capital to handle upcoming headwinds. Looking broadly at South-east Asia, Vietnamese banks have lower NPLs and better loan loss provision ratios than peers.
*There are 27 banks listed in the market, of which we examine 10 banks with combined total assets of $404bn, representing 55% of the sector assets.
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