Bank stocks surge on dividend payouts and profit growth

Strong attraction

After being heavily profited in mid-April when the VN-Index was deeply adjusted, the flow of money had reached almost all industries except the banking sector. However, as soon as the State Bank of Vietnam proposed to extend Circular 02/2023/TT-NHNN on restructuring the repayment period and keeping the debt group for another six months, the flow of money into bank stocks increased strongly in the May 16 trading session.

Statistics show that the trading value of bank stocks in the May 16 session reached the third highest level since the beginning of April 2024. Most bank tickers have increased much stronger than the overall market. The most impressive was LPB hitting the ceiling, OCB increasing by 4.69 percent, TCB up 3.74 percent; BID, CTG, MBB, HDB, VIB, STB, SHB, TPB all increasing by more than two percent.

Bank stocks play a leading role in driving the market in early 2024 - photo: Quynh Tran

In the May 20 trading session, the group of bank stocks still dominated the green color on the stock board, for example, HDB (+2.3 percent), BID (+0.5 percent), CTG (+0.8 percent), and EIB (+4.2 percent). The smaller stocks also attracted investors, such as ABB (+5.1 percent), and BAB (+4.1 percent). Notably, VPB topped the list of best-selling stocks, with the value reaching VND225 billion.

Bank stocks have contributed significantly to the VN-Index growth during the period from late 2023 to early 2024. Positive forecasts about the prospects of the banking sector, along with its profits in 2023 and the first quarter of 2024, have resulted in a strong increase in bank stock prices in the first three months of this year.

The positive information about banks’ dividend payments, especially cash dividends, is assessed by financial experts to have a significant impact on bank stocks, helping increase their prices quickly.

Specifically, Techcombank, VPBank, and MB have set the ex-dividend date, kicking off a wave of cash dividends for bank shareholders this year. Techcombank shareholders will receive a 15-percent cash dividend and a 100-percent stock dividend. MB shareholders will receive a five-percent cash dividend and a 15-percent stock dividend. VPBank will pay out its entire dividend for this year in cash at a rate of 10 percent.

A number of other banks have also revealed their cash dividend plans for this year, including VIB, ACB, Eximbank, SHB, MSB, HDBank and TPBank, with the lowest rate of three percent (Eximbank) and the highest rate of 12.5 percent (VIB).

According to Tran Thai Binh, a financial and banking analyst at VPBankS Securities Company, banks’ decision to pay cash dividends makes their stocks more attractive to investors.

Currently, the price-to-book (P/B) ratio of the banking sector is around 1.4x, which is still relatively attractive compared to the 10-year average. Although this stock group has already increased by around 15-20 percent, the potential for further price increase still remains.

Bank shareholders are set to receive high cash dividends this year

Caution needed to face “headwind”

While bank stocks are viewed positively given the growth in profits of listed banks, this growth occurs against a backdrop of low credit growth. The quality of bank assets is showing signs of deterioration, with a new wave of non-performing loans starting to emerge. This poses a risk of becoming a “headwind” that could impact the upward trajectory of bank stocks going forward.

In a recent report, MBS Securities estimated that by the end of the first quarter of 2024, the credit growth of listed banks will reach 1.9 percent compared to the beginning of the year, against 3.9 percent in the same period last year. Notably, the average non-performing loan (NPL) ratio of listed banks stood at 2.17 percent at the end of Q1 2024, edging up from 1.93 percent at the end of 2023, still 7 basis points lower than the peak level in Q3 2023. NPLs increased by 48.5 percent year-on-year, while loan loss provisioning costs only rose by a modest rate of 5.4 percent, leading to a significant decline in the average loan loss reserves (LLR). The average LLR reached only 87.5 percent at the end of Q1 2024, a substantial drop from 94.6 percent at the end of 2023 and 120.7 percent at the end of Q1 2023.

Similarly, ACBS Securities emphasized that in addition to the increase in NPLs, the loans in group 2 and restructured loans in the banking sector also exhibited an upward trend in Q1 2024. Looking at the overall picture, this ratio is still lower than the Q2-Q3 2020 period during the COVID-19 pandemic. However, when examined individually, the NPL (group 3-5) and group 2 loan ratios are increasing significantly, indicating that new bad debts are emerging.