Credit showed slower growth while deposit was boosted, which reflected economic conditions and new policies.
Overall deposit rate slightly increased by 0.2-0.4% due to banks’ high demand for deposit. Meanwhile, SBV aimed to maintain low interest rate. The inconsistency between regulator’s policy and banks’ business condition made lending rate hardly decline as expected by policy makers but remain unchanged over the year.
After banks’ acceleration to sell NPL to VAMC in 2015, the official overall NPL ratio has fallen to less than 3%. However, the ratio would be much higher if we account for the NPLs that either are kept in VAMC without being solved or are not properly classified. Since the beginning of this year, several new policies have been issued to boost NPL resolution yet the results were limited.
The deadline for the pilot phase of BASEL II implementation is coming (Sep 9 2017, as stimulated in the latest draft). Banks boosted their preparation for the pilot phase of BASEL II implementation. However, the capital raising countered a lot of difficulty. The majority of banks relied on tier II capital by issuing subordinated bonds to comply in short term. There was sharp differentiation in business results among banks in 2016.
The average interest rate will be under upward pressure in 2017. The increase in interest rate is expectedly caused by the inflation and banks’ high demand for deposit to meet the Circular 06 requirement. Meanwhile, the current overall low NIM could require banks to increase their lending rate to save their profit margin.
The pilot phase of BASEL II implementation will be one of the most important objects of Vietnam banking industry in 2017. Such pilot application could put upward pressure on funding cost of banks and negatively affect credit growth of the whole system.
We keep our conservative view by forecasting credit growth in 2017 of 16%, which is lower than this year plan of 18%. It requires time and more efficient methods to solve the NPL problem in Vietnam banking system. We do not expect a breakthrough in the process of NPL handling in 2017. Newly listed banks in 2017 will help boost the transparency of the banking system and expand investment choices in the stock market. Banks ‘performances are expected to continue sharp differentiation in 2017.
We believe that banking industry could be challenged in 2017. However, there are investment opportunities in some banks that well solved NPL issue in the past and now have high income growth potential. We recommend OUTPERFORM for VCB (good asset quality, positive business income outlook) and BUY for ACB (decreasing provision expense after completing NPL resolution).