Why are Many Bank Stocks Racing to Reach New Highs?

Expectations for a strong profit recovery from a low base have propelled many bank stocks to surge, even surpassing historical peaks.

Ms. Hong Van, an office worker (Hanoi), is thrilled as her securities portfolio returns to profit after nearly a year and a half of negative equity, with her portfolio swelling up to 30% at times. Her account currently shows a profit of over 15%, thanks to banking stocks in her portfolio surging from the bottom.

Not only Ms. Van but also investors who have put money into many bank stocks recently have seen better returns than the market average.

According to FiinGroup data, the banking sector's price index has risen by about 17% since the beginning of 2024, higher than the increase of the VN-Index (11%) as well as key sectors including securities (12%), steel (10%), and real estate (4%).

The banking stocks have surged significantly from 2023 until now

Looking further back, since the beginning of 2023, many bank stocks have surged from the bottom and recorded strong growth rates such as HDB, LPB, TCB, MBB, BIDV, VIB, ACB, CTG, and VCB.

Although the banking sector faces risks such as increasing bad debt quality, these stocks are still sought after by investors in the first two months of 2024.

Among the 26 banking stocks traded on the stock exchange, 5 have recently reached their peaks, including VCB, BID, ACB, HDB, and MBB. Additionally, stocks of some banks such as CTG and LPB are also near historical highs.

The common denominator among the stocks reaching record highs is that these banks have better business performance than the industry average. Four out of the five banks with record-high stocks are in the top profit and have better asset quality than the industry average.

However, unlike the low-interest rate and high credit environment during the Covid-19 period, money flow into bank stocks is selective and differentiated. Even though many stocks are reaching highs, the upward momentum of the banking sector this time is not widespread.

Many stocks in the lower market cap range have hardly increased over the past year, such as VBB, BVB, ABB, BAB, SGB, NVB, SSB, KLB, EIB... and are still far from their old peaks.

"Pricing of many bank stocks is reasonable"

Explaining the recent surge of many "blue-chip stocks," experts agree that the pricing of many stocks in this group is reasonable.

Mr. Ho Quoc Binh, Head of Investment Portfolio Management Department at Thanh Cong Fund Management Company (TCAM), said that this group currently has the lowest historical pricing, around 0.9-1 times. In the past 10 years, there have only been three periods of stock pricing reaching bottom, including the periods of 2013-2014, 2019-2020, and the present.

According to analysis by Vietcombank Securities Company (VCBS), the Price-to-Book (P/B) ratio of the entire banking industry is about 15% lower than the 5-year average. The high growth rates of profit and equity capital at some banks, according to VCBS, also help maintain an attractive P/B ratio.

The P/B valuation of the entire banking industry at the end of 2023 was about 15% lower than the 5-year average.

Besides the attractive valuation, analysts believe that money flows into bank stocks due to expectations that the sector has "bottomed out" and passed through the most difficult period.

Mr. Nguyen Tien Duong, Deputy Head of Research and Analysis Department at Vietcombank Fund Management Company (VCBF), commented: "With positive economic prospects and low-interest rate environment, many banks are believed to have gone through the most difficult period and may achieve good business results this year."

Mr. Ho Quoc Binh also agreed that the upward trend of many "blue-chip stocks" is activated when profit expectations for 2024 are expected to increase significantly compared to the low base of the previous year. The banking sector's profit for this year is forecasted to grow by over 20%, much higher than the average of about 15%.

According to VCBS's analysis group, the profit margin of the entire industry has recovered since the bottom in the third quarter of 2023, thanks to the absorption of high-priced capital and the improvement of the low-term cheap capital mobilization rate (CASA). Among them, private banks with a rich individual customer base have a faster profit margin increase thanks to the improvement of the non-term mobilization rate (CASA) and the recovery of retail credit as interest rates gradually decrease.

In addition to internal factors, Ms. Do Hong Van, Head of Data Analysis Department at FiinGroup, believes that the recent net buying activities of foreign investors in many stocks such as MSB, VCB, CTG, STB, BID, and OCB have significantly supported the upward trend in this group. At the same time, the driving force for the banking sector's price increase also comes from individual stories in each stock group such as plans to sell shares to foreign investors in state-owned banks or dividend payments in some private banks.

"Blue-chip stocks" have long-term potential

In recent trading sessions, the price increase momentum of the banking stock group has somewhat slowed down. According to observations by the Data Analysis Department at FiinGroup, the value trading proportion has decreased for the fourth consecutive week, approaching the 10-week low. Foreign investors have maintained a net selling status for the third consecutive week.

"These signals show that money flow into bank stocks is in a hesitant state, but this is a normal development as the sector has just experienced a strong price increase," commented the Head of Data Analysis Department at FiinGroup.

Accordingly, Ms. Hong Van believes that in the short term, money may shift back to groups with low value trading proportions, moderate price increases, and supporting stories.

As for the long term, according to Ms. Van, banks are still a notable sector due to supportive factors. In addition to stories related to foreign capital flows or dividend payment plans, improvements in asset quality as credit rebounds and signals of macroeconomic recovery becoming more solid will help increase cash flow and create price motivation for banking stocks in the near future.

The Head of Analysis Department of TCSC also predicts that if there is no "black swan" event, the stock market in general will sustain steady growth. With a leading role in cash flow, the "wave" of the banking sector may just be beginning. Mr. Binh noted that during the growth process, the stock price of this group may experience some corrections but the overall upward trend is expected to last for 2-3 years.

Short-term adjustments are also possible, according to experts at VCBF, after a fairly good price increase period. However, this unit observes many supporting factors including good business results and attractive stock valuations. Looking at the medium and long term, in fast-growing economies like Vietnam, there is still much room for banks to grow.

For 2024, VCBS forecasts that banking sector profits will continue to have strong differentiation in 2024 with a growth rate of about 10%. Some banks in the small-scale group will continue to slow down, even negative growth. Credit growth is under pressure from the economy and the real estate market's slow recovery, but the cooling interest rate environment pushes loan demand, especially retail and SME credit.

However, bad debts are a concern for many banks, experts say. Ms. Pham Lien Ha, Director of Financial Services Research Department at HSC Securities Company, noted the risk of bad debts when the asset quality of many banks still faces difficulties and needs further monitoring, depending on the market recovery, especially real estate, to address bad debt issues.

According to VCBS's forecast, internal bad debts and provisioning levels are still within control thanks to circulars and support policies, customers return to repay debts as the cost of borrowing decreases.

However, VCBS also notes that in the case of Circular 02 on debt restructuring not being extended, banks with high enterprise credit proportions and low bad debt coverage ratios may face bad debt risks and increasing provisioning pressures in 2024 - 2025. Banks with good asset quality will control bad debts and restructured debts at a reasonable level.