Banking sector – Comments on Circular 02-03/2023 and Draft to adjust Circular 41/2016

• SBV has announced Circular 02-03/2023, which allow banks to maintain debt group/reschedule principal/interest payments and buy back corporate bond.
• Draft to adjust Circular 41/2016 will recalculate the risk factor of risk-weighted assets for each kind of property loans.
• TCB, VPB, MBB… could gain better sentiment from investors thanks to Circular 02-03/2023.
• VCB, BID, CTG could be the three names taking advantage from the adjustment of Circular 41/2016 once it is officially approved.

More supportive measures to come

Following the Resolution 33/2023, the SBV has announced more supportive measures, particularly Circular 02/2023 to guide credit institutions to review and reschedule principal/interest payments or maintaining debt group for customers who are (1) facing liquidity problems to run businesses and (2) losing demand for consumer loans. Besides, the Circular also allows banks to extend the time period to allocate provisions for those aforementioned loans (figure 1). In overall, this new policy will partially solve the liquidity crunch issue, especially property developers, and support businesses with good fundamental as well.

…which are good news for banks, in our view

Until now, the stagnant property market is still a big concern for banking sector outlook. With Circular 02/2023, the pressure to build up provisions will be eased as banks can re-arrange their provisioning expenses within 2 years (2023 and 2024). We think the investor’s sentiment will be improved to banks having great exposure to property/consumer finance loans in credit book like TCB, MBB, VPB… (figure 2); as these banks are having to deal with a higher-than-peers credit-cost rate due to their rising credit risk and weakening asset quality compared with other “safe” banks in the current circumstance.

Corporate bond market might be warmed up in the rest of 2023

Circular 03/0223 has postponed Article 11 Clause 4 Circular 16/2021, which means banks are still able to buy back unlisted CB sold/distributed by them with several conditions (figure 1). This is one of the ways for banks to accelerate their lending activities via buying CB in the context of weak system credit growth (+2.06% ytd at-end 1Q23) and current abundant liquidity among the banking system. In addition, this Circular will help boost CB demand and thus benefit to some active plays in CB market like TCB, VPB, MBB (figure 3). However, it also depends on each bank’s risk appetite, as banks have tended to strengthen their balance sheet rather than chasing for growth, after 2H22 turbulence.

Draft to adjust Circular 41/2016 is to change the risk factor of risk-weighted assets – focusing more on favorable houses

The draft to adjust Circular 41/2016 aims to lower the risk factor of industrial property loans and loans to social housing group, in general, pointing out that lending to those segments are encouraged. This action is strictly following the guidance in Resolution 33/2023 (about the credit package of VND120tr). In our opinions, stated-owned banks (SOCBs) like VCB, CTG, BID will take their advantage if this draft is officially approved. This is also a solution to boost SOCBs’ credit growth in the context of their softer NIM (when the interest rate trend shows signs of reversal, SOCBs’ lending rates will likely to decline faster than the deposit rate, as SOCBs still have to obey the Government’s call on lowering interest rate to support businesses).

Please follow this link for the full report