At the seminar “Successful Investment: Investment Trends and Opportunities 2023” organized by Thanh Cong Securities (TCSC) on April 8, experts discussed the driving force that may impact bank stocks in the near future. Historically, when the market was challenging, the Price to Book Value (P/B) of banks tended to be below 1. However, when the market rose, the P/B ratio increased by 2-3 times.
Foreign market surveys have shown that when the Federal Reserve raises interest rates, risk assets fall. But when monetary policy shifts from tightening to loosening, these assets become more active. This trend has been evident recently, with risky assets such as stocks and cryptocurrencies rising sharply. Vietnam’s relatively open economy and its connection to international financial markets make it possible that similar market developments could occur in Vietnam.
Experts predict that the economy may bottom out in the next 3-6 months following the interest rate trend, with large cyclical stocks such as banks and securities leading the way in the bottom-making market. Since the beginning of the year, the VN-Index has increased by about 6%, but banking stocks have increased by 12%, non-banking finance by more than 13%, and oil and gas by 17%.
Trung, an expert at the seminar, notes that the banking industry is still stable despite the recent increase in bank shares. Historically, the P/B ratio of banks has been low during difficult market conditions, but when the market rebounds, the P/B ratio has increased significantly. Although bank stocks have increased by more than 10% in a short time, this is not the largest increase compared to other stock groups.
The banking industry’s primary output is credit, and the growth of outstanding loans has been at the lowest level in recent years. However, with interest rates expected to drop in the second quarter of 2023, individuals and organizations are likely to increase borrowing. As a result, credit growth is expected to improve.
On the input side, mobilization costs have been a significant pressure point for banks in the past, but this pressure has been alleviated by the operator’s actions. However, the cost of provisioning is currently putting significant pressure on banks’ profits, particularly in the challenging economic and real estate market environment. Depending on the bank’s strategy, the cost of provisioning can be high or low.
In summary, if the real estate market recovers, investors may choose stocks with a more profitable credit portfolio. Conversely, cautious investors may opt for banks with less risky loans.
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Source: Vietnam Insider