If you are investing in the Vietnam stock market via a managed fund product, chances are you will have a significant exposure to the banking sector.
Are there some reasons why Vietnam bank stocks might have growth tailwinds that are lacking in the banking stocks listed in developed markets?
Read on to get some perspective on some of the top Vietnam banks listed on the stock market.
In order to see how the financials sector can represent significant portions of the total Vietnam market capitalization, and of well-known Vietnam stock market indexes, refer to my broad market overview below:
OVERVIEW OF THE VIETNAM STOCK MARKET
See how much exposures the financial sectors have made up in popular Vietnam stock market indexes here
SHOULD I INVEST IN VIETNAM BANK STOCKS in 2022?
Here are some factors that might tempt to you to own Vietnam bank stocks. The reasons here are not necessarily the case for developed market bank stocks.
- Banking penetration is low in Vietnam with huge room to grow, only about a third of the adult population have bank accounts.
- Other banking services also have lots of growth potential. Many Vietnamese with bank accounts are yet to embrace mortgages, insurance, stockbroking / investment services etc.
- Room for Vietnam consumers to take on debt, use credit cards etc.
- Vietnam bank margin protection, they could still cut consumer’s deposit rates to protect margins.
- Less likely to engage in imprudent lending, arguably this is the case because Vietnam experienced a banking crisis finishing around 2013, so fresher in their memories not to repeat errors of the past.
- Fintech opportunity, Vietnam consumers at a less advanced stage to embrace compared to developed markets right now, but that is set to evolve. Vietnam consumers have a high degree of digital literacy.
In summary, the opportunity in the banking sector in an economy is conducive to the typical cycle of a frontier economy and its consumers advancing closer to middle income status. To put it simply, the average Joe after being able to comfortably feed their families, own their motorcycle, phone etc, start to look to owning their own property (a mortgage?), and protecting their wealth (insurance?). Then as confidence in their stable salaries grow, further try to enhance lifestyle with credit card usage. Or if they get ahead financially, embrace investing services like stockbroking, funds management?
A lot of this cycle has taken place in developed economies already, limiting the upside growth potential of banking stocks there.
The below graphic from 2018 at the time highlighted the opportunity in the Vietnam banking sector from a regional perspective, that existed due to Vietnam’s lower banking penetration rate.
TOP 5 BANKS IN VIETNAM BY STOCK MARKET CAPITALIZATION
- VIETCOMBANK, Commercial Bank for Foreign Trade of Vietnam (HOSE:VCB)
- TECHCOMBANK, Vietnam Technological And Commercial Bank (HOSE:TCB)
- BIDV, Commercial Bank For Investment And Development Of Vietnam (HOSE:BID)
- VP BANK, Vietnam Prosperity Joint Stock Commercial Bank (HOSE:VPB)
- VIETINBANK, Vietnam Commercial Bank For Industry And Trade (HOSE:CTG)
vietnam bank stock comparison
Let’s now give some brief backgrounds to get familiar with some of the major banks listed on the Vietnam stock market.
VIETCOMBANK, Commercial Bank for Foreign Trade of Vietnam (HOSE:VCB)
If you want the comfort of investing in Vietnam’s number one bank in terms of market cap, profits, and the leader in current account savings accounts (CASA) then Vietcombank is the one. They have been listed on the Ho Chi Minh Stock exchange since 2009 and are the highest ranked Vietnam bank by international credit rating firms.
Their brand is very strong, and funding costs are low due to customer deposits accounting for circa 80% of total funding.
TECHCOMBANK, Vietnam Technological And Commercial Bank (HOSE:TCB)
Techcombank also boasts relatively lower costs of funds, enabling them to rank highly in terms bank net interest margins. If you want to get exposure to the potential growth of digital banking in Vietnam then Techcombank might serve you well. They have long been a pioneer in that aspect to banking in Vietnam. They also tend to target the more larger affluent retail customers and see opportunities in capital markets areas such as advisory and issuance.
They are also the number one player when it comes to the mortgage lending market, and therefore well positioned if there is strength in the high end residential market in HCMC and Hanoi.
BIDV, Commercial Bank For Investment And Development Of Vietnam (HOSE:BID)
In terms of customer deposits, loans, and overall bank assets, BIDV is the number one in Vietnam. If you are asked to guess who someone banks within Vietnam BIDV would be the choice, and they have the second largest network in terms of ATMs, branches and transaction offices. Hence if you have holidayed in Vietnam before well this is a banking logo that probably jogs your memory.
Their strategy is to continue to be the leading Vietnam bank for the retail and SME segments. As banking penetration improves amongst the lower income population in Vietnam they are well placed to take advantage of this theme. Returns to shareholders can be enhanced from their dominant scale and getting the future technological advancements right. They are striving to make their future digital presence as strong as their current physical network reach.
They are quite well diversified in terms of their loan book.
VP BANK, Vietnam Prosperity Joint Stock Commercial Bank (HOSE:VPB)
VP Bank is a far smaller player than the likes of Vietcombank, Vietinbank and BIDV in terms of total assets.
VP Bank in recent history has a solid balance sheet and management and higher ROE than peers.
It’s consumer finance subsidiary, FE Credit, has in the past accounted for quite a significant part of its earnings. Fears over increasing consumer finance regulation can weigh on the stock. The pandemic has been a tough environment for VP Bank to navigate in terms of consumer finance. Having said that, the long term structural story of this area still remains intact.
Longer term their vision to embrace more the trend to digital transformation could be a catalyst if we see cost savings.
VIETINBANK, Vietnam Commercial Bank For Industry And Trade (HOSE:CTG)
Vietinbank has made it a priority in the years ahead to promote the growth of deposits, particularly low-cost funds as a source. At the moment they don’t enjoy that position of strength that say Vietcombank has in that regard.
In terms of total assets they rival the big players such as Vietcombank and BIDV, therefore their scale should help them achieve their visions on further reducing overall costs and labour productivity in the longer term. They also want to take advantage of their size and reach by transforming their sales strategy to not just single products but promoting cross selling opportunities.
HOW ABOUT VIETNAM BANKING SECTOR STOCK VALUATIONS?
In my next blog post I plan to cover how such banks might stack up in terms of valuations and discuss more stock specific factors that might determine which ones could outperform or not. For now though, I hope this provides a handy backdrop for those that may not be all that familiar with Vietnam banking names, and the sector’s overall potential.
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