Banking sector – 1Q23 results: difficulties emerge

• Aggregated PBT of 25 listed banks only increased 6% yoy in 1Q23 (1Q22 of +30% yoy).
• System credit grew 2.1% ytd at end-1Q23 – much lower than the same previous quarters of 5-6%.
• Banks’ asset quality deteriorated; system NPL ratio rose to 2.9% at end-1Q23 (from 2% at end-2022).

Corporate lending takes the lead
At end-1Q23, system credit growth only increased 2.1% ytd – much lower than previous quarters of 5-6%. Banks having exposure to corporate loans (TCB, HDB, VPB, TPB, MSB…) recorded better-than-average credit growth. Meanwhile, retail banks’ credit book slowed down/decreased sharply ytd (ACB, VIB, STB…). Weakening economy has dampened consumer spending and the ability to fulfil debt obligations, diminishing loan demand and banks will be more conservative to lend this group. For corporates, especially property developers (with their on-going liquidity issue) have been craving for funds to refinance/fund their businesses (credit to developers increased 6.5% ytd – higher than system credit growth).

A divergence in deposit structure
Besides of cutting spending, individuals will tend to “save money” in the context of higher interest rate environment and weak economic growth (individual deposits has continued its growth momentum until Feb-2023). However, corporates deposits kept reducing strongly (figure 6). Although liquidity has improved in the interbank market, customer deposits still play an important role in banks’ funding. Therefore, this trend will benefit for the liquidity of banks owning (1) a large proportion of individuals deposits and (2) high LDR ratio like STB, ACB…

Which banks can minimize NIM compression risk?
Aggregated NIM of 25 listed banks shrinked 18bps in 1Q23, as they have to sacrifice profits to support clients during this tough time. NIM of TCB, TPB, VPB, MBB… have compressed significantly as corporate bonds (CB) and consumer finance (2 segments carrying higher yields than normal loans) have been hit hard. We believe the increase in corporate lending and individual deposit flows will maintain until the interest rate shows clearer signs of reverses and the economy starts recovering (at least in 3Q23 onward). Hence, during 2023, banks with a large amount of (1) corporate loans and CB in credit mix and (2) customer deposits in funding mix… will deliver softer NIM compared to the sector average. On the other hand, retail names with a diversified funding mix (borrowing from interbank, ample CASA…) like VIB, HDB, MBB… can mitigate NIM compression risk. With STB, its NIM will expand strongly in 2023 given no more pressure from accrual interest expense.

Asset quality still needs to watch out
According to the SBV, sector NPL has climbed to 2.9% at end-1Q23 (from 2% at end-2022). Most of the banks posted higher NPL ratio and lower LLR compared to the last quarter (figure 13 & 14). Difficulties from property market is still a big concern to banks’ asset quality, as this sector made up a huge contribution to total system credit (~21% at end-2022). Thus banks with chunky provisions and benign credit mix like VCB, ACB… will be able to minimize this risk. However, we expect that the pressure to build up provisions as well as bad debt risks of TCB, MBB, VPB… could be eased, once property developers can improve their liquidity situation thanks to many supportive policies (figure 19) and some projects have been tackled the bottleneck recently.

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