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JP Morgan recommends adding positions despite the 11% rally YTD (VN Index +6%) and 30% in the last three months (VN Index +19%). TCB is JPMorgan’s top pick (confluence of high-end consumer, WM and capital markets), with ACB and VPB also offering significant upside.

No Need to Worry about Loan/GDP Ratio in Vietnam Banks, JP Morgan Experts Say
JP Morgan believes Vietnam banks offer the best combination of growth and RoE in ASEAN. High nominal GDP growth and resilience in the last 12 months provide visibility on credit and earnings growth over the next few years. JP Morgan expects a 16% EPS CAGR for the sector over FY20-23. 
This should lead to 8-42% upside for stocks over the course of the year, and meaningfully higher in the next three years. Hence, JP Morgan recommends adding positions despite the 11% rally YTD (VN Index +6%) and 30% in the last three months (VN Index +19%). TCB is JPMorgan’s top pick (confluence of high-end consumer, WM and capital markets), with ACB and VPB also offering significant upside.
JP Morgan increases FY21-22 EPS estimates for ACB/TCB/VPB by 8-11% and PTs by 22-25%. JP Morgan’s PT for VCB is unchanged after marginal changes to FY21- 22 EPS estimates. TCB, ACB and VPB are trading at 1.54x/1.28x 2021E/22E P/Bs for 18-20% ROE. This offers potential for re-rating, in addition to book value compounding. 
Potential catalysts for re-rating include consistency of RoE and EPSg, as well as developments on improved foreign access (i.e., NVDRs).
Fitch expects a 15% PPoP CAGR in the next three years, led by 25bps y/y higher NIM this year and a 19% loan CAGR in 2020-23. The non-II outlook is robust, led by fee revenues across banks (bonds at TCB, bancassurance at ACB/VCB, payments at VPB). 
On the flip side, Fitch assumes a normalization of trading gains at ACB. Further, opex should move up by a 19% CAGR in 2020- 23 as banks scale up digital spend. Vietnam has relatively high daily active users of bank apps (as a % of the population) vs. PH, ID and IN, but lags the rest of Asia. 
This suggests scope for further digital spend and adoption. Further, VPB, TCB and VCB have significantly higher market shares of downloads and DAU vs. deposits, indicating relative strength in the digital offerings of these banks within the country. 
Accordingly, JP Morgan expects them to press this advantage. SBV is targeting 12% credit growth for the year, with the quota allocated quarterly. Higher quota will be given to banks with lower NPL and those that pass on rate cuts to borrowers. Banks under coverage have managed asset quality well and should be in position to gain market share. TCB has the highest capital (16.1% CAR) and lowest NPL (0.5%) within our coverage, allowing for a 20% loan CAGR over 2020-23E.
JPMorgan does not worry about 116% loans/GDP in Vietnam (% of revised GDP as of 2020, per our calculations). Liquidity is ample (~3.5% CA and ~6% BoP surplus in the last three years), which underpins banks’ ability to supply credit.
Demand for credit is led by steady nominal GDP, as newer segments of the economy lever up (private sector corporates, consumer, export-related industries). The capital structure of legacy borrowers (majority SoE) has traditionally been dominated by bank loans, which inflate the debt/GDP metric.
The corporate bond market has increased to 14% of GDP from 3% (link) and is likely to grow much faster, as VND-denominated bonds have meaningful domestic demand. Consumer loans/GDP has seen a sharp increase to 54% as of 2020 (JPMe) from 25% in 2014. This suggests potential risks, but given that banks have navigated 2020 AQ, the next two to three years appear sanguine.

DIEP NGUYEN