AFC Vietnam Fund is a fund that invests in the Vietnamese capital market to capture valuable investment opportunities for businesses, particularly small and medium-sized units.
Being the industry with the largest proportion of 25.8 percent (49.9 billion US dollars) on the HCM City Stock Exchange (HoSE), bank shares always draw attention of investors. In its recently published report, AFC Vietnam Fund explained why Vietnamese banks are attractive to make investment.
Compared to other countries, the banking industry of Vietnam has a much higher Return on Equity (ROE) compared to many other countries.
The ROE of the banking industry of Vietnam is over 18%, while it is only 13 percent in Indonesia, 10 percent in Singapore, nine percent in Malaysia, eight percent in Thailand and seven percent in the Philippines. The higher ROE often equates to a higher valuation, and thus AFC Vietnam Fund believes that Vietnamese banks deserve to have higher prices.
Strong economic recovery and growth
In the last three months, Vietnamese banks have reported impressive increases in stock price, reaching an average of 30%. This number is 22 percent in Thailand, seven percent in Indonesia, and six percent in the Philippines, Malaysia and Singapore.
Vietnam is one of the few countries that have successfully controlled the Covid-19 pandemic and may record a positive GDP growth of 2.9 percent in 2020. According to many forecasts, the GDP growth of Vietnam is expected at about seven percent to 8.5 percent in 2021.
Vietnamese banks play an important role in stimulating the economy. The government of Vietnam has asked banks to cut interest rate at the start of the pandemic. the government has also enacted different policies to assist businesses affected by Covid-19, significantly reducing the number of bankruptcy cases. All of these measures have positively influenced the bad debt ratio of different banks, particularly when comparing to other countries in the region.
Improvement in Net Profit Margin (NIM)
Over the past 12 months, the one-month savings interest rates in Vietnam have fallen from about 10 percent to about five percent. Due to the interest rate reduction, the financial market and the economy have been stimulated. This also has had a huge positive impact on banks which are capable of increasing credit and also increased the NIM. Most Vietnamese banks define their lending interest rates as the cost of capital, plus fixed costs and an amplitude of at least two percent.
The banking industry of Vietnam has great potential for long-term growth as about 70 percent of the adult population still does not have a bank account. In addition, only about four percent of the population has credit cards. With 87 percent of the population under 54 years old, this is a great opportunity for the development of retail banking in Vietnam.
The Vietnam’s banking industry is still far behind most Asean countries, so AFC Vietnam Fund sees a great long-term growth prospect. Many banks in Vietnam have heavily invested in online mobile banking solutions to meet the growing demand for digital banking. “We believe that shares of Vietnamese banks are still priced lower than other regional banks’ while they are generating much higher profits and recording stronger growth,” said AFC Vietnam Fund.