After a challenging 2023, the favorable macro foundation is expected to be a launching pad for the banking industry's recovery in 2024. Ms. Pham Lien Ha, Director of Financial Services Research at Ho Chi Minh City Securities (HSC) - assessed that banking stocks are expected to continue to attract strong cash flows in the Year of the Dragon.
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Promising picture with many bright spots
According to Ms. Pham Lien Ha, Director of Financial Services Research HSC, shared at the Workshop "Banking Industry Outlook 2024", the picture of the banking industry in 2024 has many favorable factors but short-term risks are still hidden. Positive factors come from stable system liquidity with low interest rates, the economy is on the path to recovery from the fourth quarter of 2023 and GDP in 2024 is expected to remain positive at over 6%. On the other hand, the conditions for maintaining a loose monetary policy are more favorable, in the context of under-control inflation and reduced pressure on VND and some supporting policies such as Circular 02 on debt restructuring and maintaining the same debt group can be extended, Circular 16 on the purchase and sale of corporate bonds by credit institutions will be amended.
From the above favorable factors, HSC experts expect credit demand to recover, helping credit growth to be better than in 2024. The growth momentum in the first half of the year may come from public investment, import and export, or FDI customers. Although somewhat slower, individual customer demand for consumption and investment will recover strongly in the second half of the year.
In terms of net interest margin (NIM), after an average decline of 50 basis points in 2023, the expert expects a slight recovery of around 20-30 basis points. Fee-based activities also saw some growth compared to last year, with a recovery from the bancassurance segment.
Although asset quality has improved in the fourth quarter as bad debt has decreased, HSC experts note that this is still a cause for concern. The reason is that bad debt in the entire system at the end of 2023 is still high at about 4.8 - 4.9%, although more than half of it is bad debt from SCB Bank, it can still be a bottleneck for the economy if not handled. On the other hand, bad debt of 14 leading banks, if including debt being restructured according to Circular 02, is currently quite high. With the above views and forecasts, the expert estimates that the profit growth of 14 leading 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, said that the proportion of the middle class and above population is increasing rapidly and may continue to increase strongly in the coming years. This shows that there is still a lot of room to provide financial products, thereby the total financial demand in 2024 is expected to continue to grow.
With much potential while valuations remain attractive, banking stocks are expected to attract strong cash flows in 2024. With a strong price increase in the first two months of the year, Ms. Pham Lien Ha said that the recovery prospects of the banking industry have been partly reflected in valuations.
Quote: The current forward P/B ratio for 14 banks is at 1.25x, up from 1.05x at the end of 2023, but still lower than the long-term average.
To select bank stocks, HSC experts believe that it is necessary to consider several factors such as industry prospects, fundamentals, position and story of each bank and the overall valuation of the industry as well as that bank. Typical among the banks analyzed by HSC is Vietnam Technological and Commercial Joint Stock Bank (code TCB) with an attractive long-term story and a strong recovery in 2024.
Four special advantages of Techcombank
Techcombank's prospects were emphasized by Mr. Phung Quang Hung, Deputy General Director of Techcombank, through 4 special advantages:
Firstly, collaborating with Techcombank Securities Joint Stock Company (TCBS) to pioneer in asset management. In this field, Techcombank is the number 1 bank with assets under management of nearly 600 trillion VND, ranked number 1 in bond issuance and distribution, and ranked number 3 in stock brokerage market share on the HOSE. With the forecast of an increasing proportion of the population with high income, the bank will continue to launch new products to develop this field.
Second, Techcombank also has the advantage of having diverse sources of revenue. Techcombank is the leading bank in terms of fee income to total revenue. For the individual customer segment, Techcombank is the number 1 bank in card payment market share. In 2023, despite the slowdown in many key markets, the bank's fee income will still grow. With the recovery of import and export, infrastructure construction, fee income products of corporate customers will continue to increase and this will be an important driving force for Techcombank.
Third, developing value chains is also a special strength of Techcombank. In the real estate and construction sector, TCB has successfully implemented an efficient value chain from input to output for many large enterprises. The above strategy ensures sustainable growth, develops 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 and 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 promote to create growth momentum for Techcombank in 2024 and the long term,” said Mr. Phung Quang Hung, Deputy General Director of Techcombank.
Responding to investors' concerns about the corporate bond market and Techcombank's corporate bond investment, Mr. Nguyen Xuan Minh, Director of Techcombank Investment Banking, Chairman of the Board of Directors of Techcombank Securities Joint Stock Company (TCBS), said that the recovery of the bond business segment for Techcombank and TCBS is taking place very strongly, at times even more impressive than the period before the liquidity crisis that occurred in 2022.
Quote: “Currently, the demand for buying bonds issued by TCBS is on average 250 - 300 billion VND/day, a record high for TCBS in 8 years of issuing bonds. This is a positive signal and TCBS expects a stronger recovery in 2024,” said Mr. Nguyen Xuan Minh.
Growth drivers driving the market
Sharing about the business outlook for 2024, Mr. Phung Quang Hung expects Techcombank's total operating income and pre-tax profit to grow well thanks to a number of factors.
In terms of funding, CASA ratio will continue to recover, thereby affecting funding costs and NIM may recover in the range of 4% - 4.5%, after falling to a low base in 2023. In particular, interest income continues to grow as customer base expands, importantly fee income - Techcombank's main focus will continue to grow.
In addition to its stable business foundation, Techcombank also has healthy asset quality. The bank's bad debt ratio at the end of 2023 was 1.19%, the real estate business bad debt ratio was 0%, and the home loan bad debt ratio was 1.5%. This is a healthy level of bad debt for the banking industry in a difficult context like last year.
Regarding credit growth, Techcombank representative said that the bank will use up the limit granted by the State Bank. Techcombank's credit growth after the first two months of the year increased by about 3-4%, with the corporate customer segment alone recovering strongly by nearly 7% thanks to the recovery of exports.
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