Bank stocks are at attractive valuation levels in 2024.

After a challenging 2023, favorable macroeconomic conditions are expected to be the springboard for the banking sector's recovery in 2024. Ms. Pham Lien Ha, Director of Financial Services Research at Ho Chi Minh City Securities Corporation (HSC), assesses that banking stocks are expected to continue attracting strong capital inflows in the Year of the Dragon.

A promising picture with many bright spots.

According to Ms. Pham Lien Ha, Director of Financial Services Research at HSC, speaking at the "Banking Industry Outlook 2024" seminar, the banking industry outlook for 2024 has many favorable factors, but short-term risks remain. Positive factors include stable system liquidity with low interest rates, an economy on the path to recovery from Q4/2023, and an expected GDP growth rate of over 6% in 2024. On the other hand, conditions are more favorable for maintaining loose monetary policy, with inflation under control, reduced pressure on the VND, and some supporting policies such as Circular 02 on debt restructuring while maintaining the same debt classification potentially extended, and Circular 16 on the buying and selling of corporate bonds by credit institutions expected to be amended.

Based on the above favorable factors, HSC experts expect credit demand to recover, leading to better credit growth in 2024. Growth drivers in the first half of the year may come from public investment, exports and imports, or FDI customers. Although somewhat slower, individual customer demand for consumption and investment will recover strongly in the second half of the year.

Regarding the net interest margin (NIM), after a decline of an average of 50 basis points in 2023, the expert expects a slight recovery of around 20-30 basis points. Fee-based revenue also showed some growth compared to last year, driven by a recovery in the bancassurance segment.

Although asset quality improved in the fourth quarter with a decrease in non-performing loans (NPLs), HSC experts noted that this remains a cause for concern. This is because the NPL ratio across the entire banking system at the end of 2023 remained high at around 4.8-4.9%, and although more than half of this NPLs came from SCB Bank, it could still be a bottleneck for the economy if left unaddressed. Furthermore, the NPLs of the top 14 banks, including those undergoing restructuring under Circular 02, are currently quite high. Based on these perspectives and forecasts, the expert estimates that the profit growth of these 14 banks will reach 20-21% in 2024, higher than the 5.5% profit growth in 2023.

Sharing the same view, Mr. Phung Quang Hung, Deputy General Director of Techcombank, believes that the proportion of the population belonging to the middle class and above is increasing rapidly and may continue to grow strongly in the coming years. This shows that there is still considerable room to provide financial products, and therefore the total demand for finance in 2024 is expected to continue to grow.

With significant potential and still attractive valuations, banking stocks are expected to attract strong capital inflows in 2024. Given the relatively strong price increases in the first two months of the year, Ms. Pham Lien Ha believes that the recovery prospects of the banking sector have already been partially reflected in valuations.

Quote: Currently, the projected P/B ratio for 14 banks is 1.25 times, an increase from 1.05 times at the end of 2023, but still lower than the long-term average.

To select bank stocks, HSC experts suggest considering several factors such as industry prospects, fundamentals, the position and unique story of each bank, and the overall valuation of the industry and that bank. A prime example among the banks analyzed by HSC is Vietnam Technological and Commercial Bank (TCB), with its attractive long-term story and strong recovery projected for 2024.

Four distinct advantages of Techcombank

Techcombank's prospects were highlighted by Mr. Phung Quang Hung, Deputy General Director of Techcombank, through four distinct advantages:

Firstly, Techcombank is collaborating with Techcombank Securities Joint Stock Company (TCBS), a pioneer in asset management. In this segment, Techcombank is the number one bank with assets under management reaching nearly 600 trillion VND, ranking number one in bond issuance and distribution, and number three in stock brokerage market share on the HOSE exchange. With the projected increase in the proportion of high-income individuals, the bank will continue to introduce new products to develop this segment.

Secondly, Techcombank also has the advantage of possessing diverse revenue sources. Techcombank is the leading bank in terms of the proportion of fee income to total income. For the individual customer segment, Techcombank is the number one bank in terms of card payment market share. In 2023, despite the slowdown in many key markets, the bank's fee income still grew. With the recovery of import and export activities and infrastructure development, fee-generating products for corporate customers will continue to increase, and this will be an important driving force for Techcombank.

Thirdly, developing value chains is also a particular strength of Techcombank. In the real estate and construction sector, TCB has successfully implemented an efficient input-to-output value chain for many large enterprises. This strategy ensures sustainable growth, the development of many new customers at low cost, and good risk management.

Fourth, Techcombank continues to diversify and develop new customer segments. Leveraging its high-end customer base along with superior data and technology capabilities, the bank will continue to expand its target customer base to lower segments while maintaining profit margins.

“These are the strengths that we will continue to leverage to drive Techcombank’s growth in 2024 and the long term,” said Mr. Phung Quang Hung, Deputy General Director of Techcombank.

Responding to investors' concerns regarding the corporate bond market and Techcombank's corporate bond investments, Mr. Nguyen Xuan Minh, Director of Techcombank's Investment Banking Division and Chairman of the Board of Directors of Techcombank Securities Joint Stock Company (TCBS), stated that the recovery of the bond business segment for Techcombank and TCBS is very strong, at times even more impressive than the period before the liquidity crisis in 2022.

Quote: “Currently, the demand for bonds issued by TCBS averages 250-300 billion VND/day, a record high for TCBS in its 8 years of bond issuance. This is a positive sign, and TCBS expects a stronger recovery in 2024,” said Mr. Nguyen Xuan Minh.

Growth drivers are driving the market.

Sharing his outlook for business in 2024, Mr. Phung Quang Hung expects Techcombank's total operating income and pre-tax profit to grow well thanks to several factors.

Regarding funding, the CASA ratio will continue to recover, thereby impacting funding costs, and the Net Interest Margin (NIM) could recover to around 4%–4.5%, after declining to a low base in 2023. In particular, interest income will continue to grow as the customer base expands, and importantly, fee income – Techcombank's main focus – will continue to grow.

Besides a stable business foundation, Techcombank also has healthy asset quality. The bank's non-performing loan (NPL) ratio at the end of 2023 was 1.19%, with a 0% NPL ratio for real estate businesses and a 1.5% NPL ratio for home loans. This is a healthy NPL level for the banking industry, given the challenging conditions of the past year.

Regarding credit growth, a representative from Techcombank stated that the bank will utilize the full credit limit granted by the State Bank of Vietnam. Techcombank's credit growth after the first two months of the year increased by approximately 3-4%, with the corporate customer segment experiencing a strong recovery of nearly 7% thanks to the resurgence of exports.

Source: https://baodautu.vn/nhom-co-phieu-ngan-hang-o-vung-dinh-gia-hap-dan-2024-d210898.html