During the trading session on 11 October, the VN Index suddenly gained more than 21 points thanks to the green color from bank stocks with an average increase of 3% to 5%. The fact that the banks share price increased again made investors very excited, with the expectation that they would be profitable again after a long time of loss facing, ever since the Covid-19 pandemic broke out. Even investors who did not hold NH stocks were also happy because at the moment only banks can pull VN Index up to 1,400 points.
For example, in the 11-10 session, the two banks that contributed the most points to the VN Index were Techcombank (TCB) and Vietinbank (CTG) with 2.09 points and 1.93 points, respectively. However, bank stocks quickly cooled down when they dropped sharply in the following trading sessions to the surprise of investors. Earlier, bank stocks had made investors happy when they increased strongly, but then suddenly turned to decrease in the next session. Specifically, in the trading session on 5-10, bank stocks helped the VN Index increase by 15 points but immediately corrected in the next trading session.
Although it is forecast that the banking industry will suffer many negative impacts from the Covid-19 pandemic, the recent developments of the banking sector have disappointed many investors. According to statistics, banking stocks have adjusted about 20% to 30% compared to the earlier peak. With this reduction, many investors who used margin loans to buy bank stocks had to sell at a loss. This is also part of the reason for the strong selling of bank stocks right after the hot gain session.
Foreign investors net sell
Not only domestic investors, but the selling pressure of banking stocks also came from the portfolio restructuring activities of foreign investors. According to HoSE statistics, foreign investors net sold 12 to 16 stocks in the first six trading sessions of October, in which, the focus of net withdrawal was on bank stocks. For example, CTG net sold nearly 9.5 million shares, equivalent to VND 278 bn. Previously, CTG was continuously sold out by foreign investors in the first eight months of the year and was only allowed to buy VND 337 bn in September. In the first nine months of the year, CTG was sold by foreign investors for nearly VND 7,000 bn.
Vietcombank (VCB), is also on the list of stocks that were heavily dumped by foreign investors with nearly 1.3 million shares in the first trading session in October with transaction value of nearly VND 125 bn. Similarly, Military Bank (MB) and HDBank (HDB) were net sold by foreign investors with a selling value of VND 107 bn and VND 75 bn, respectively. With VPBank (VPB), although the net selling volume dropped sharply in the first trading session of October to only VND 20 bn, this bank stock unexpectedly topped the list of net sellers of foreign investors in the first nine months of the year with a value of more than VND 5,800 bn.
However, foreign investors did not sell indiscriminately but selectively. These were the groups of industries that increased strongly in the first months of the year, and business prospects have reflected in the market price. With this criterion, it is completely understandable that banks become targets of foreign investors. In the basket of banking stocks, foreign investors will prioritize reducing the proportion of stocks that do not have many prospects of increasing profits and are strongly affected by bad debts in the near future.
Currently, bad debt is the most serious and worrisome risk for the group of bank stocks, after more than 120 days of social distancing in many provinces and cities across the country. According to data recently announced by the State Bank of Vietnam, the ratio of on-balance sheet bad debts, unresolved debts sold to VAMC, and potential bad debts is 3.66%. If including debts that have not been transferred to bad debts due to the restructuring, exemption, or reduction of interest according to Circular 01/2020/TT-NHNN due to the impact of the Covid-19 pandemic, this rate is 7.21%, higher than the figure of 5.08% at the end of 2020.
Forecasting bad debt for the whole year, Mr. Nguyen Kim Anh, Deputy Governor of the State Bank of Vietnam, believes that the ratio of bad debt on the balance sheet and potential bad debt is expected to be at 7.1% to 7.7%, or even around 8%. This result is forecast on the basis that the bank has implemented debt restructuring and deferral in accordance with Circulars 01, 03, and 14. However, the impact of the fourth wave of the Covid-19 pandemic will still have an impact in 2022, and the banking industry will still face many difficulties.
In a recently published report by the banking industry, Maybank Kim Eng Securities Company (MBKE), forecasts that the bad debt ratio by the end of the year will be about 7.2%. According to MBKE, this level of bad debt will not cause systemic risks, leading to a breakdown in banking operations as happened in the period 2012 to 2014, because there is a buffer of bad debt risk of banks themselves plus policies of banks.
Current support, such as debt rescheduling policy, has created room for banks to manage provisioning and increase profits if compared to the performance of banks in 2016, when the bad debt ratio was at 10.6%, with the present, when the bad debt ratio is at 4.7% and is likely to increase to 7.7%.
Overall, considering the potential bad debt level in the worst case scenario, the risk reserve buffers of banks are now much higher and are further supported by the policy on debt rescheduling and provisioning. Therefore, there will be no interruption in the operation of banks. Even credit growth will continue to maintain and recover strongly after the pandemic.
According to Rong Viet Securities Company (VDSC), the bad debt score will mainly be in the fourth quarter, but banks have actively set it aside in the second quarter, depending on the situation and financial capacity of each bank. Due to this lag, VDSC maintains a cautious and optimistic view of the banking industry. However, with a correction of 20% to 30% since last peak, the bank stocks can still attract cash flow from medium and long-term investors.