AFC Vietnam Fund has strategically excluded banks from its portfolio due to perceived risks within the banking and real estate sectors, particularly anticipating challenges in the banking sector over the next 2-3 years. The decision is rooted in observations of the consequences of the late 2022 real estate crisis. During this period, numerous banks had to aggressively increase deposit interest rates to stave off a liquidity crunch. The State Bank of Vietnam (SBV) therefore intervened in the second half of 2023 to ease interest rates. The SBV also issued a new regulation (Circular 02/2023/TT-NHNN), permitting commercial banks to maintain existing loan risk classifications without reclassification and, at the same time, allowing banks to reduce loan provisions by 50% until June 2024. At a recent press conference, the Standing Deputy Governor Dao Minh Tu stated that the SBV is contemplating extending this Circular, given that the current non-performing loan (NPL) level has increased from 1.92% at the end of 2022 to 4.95%, despite this new regulation. He also mentioned that the SBV plans to manage monetary policy in 2024 by focusing on restructuring the credit institution system, handling bad debts, and striving to achieve an NPL ratio below 3% by the end of the year. We remain cautious and concerned that due to the SBV’s leniency, the official and “non-official” NPL ratio will deteriorate further, given the ongoing challenges in the banking sector.
This caution is supported by the SBV's announcement of credit growth of 13.5% year-on-year at the end of 2023, up from around 9.15% at the end of November. This indicates a hurried lending environment in the last month of 2023, with a monthly increase of around USD 20 bn. This substantial loan growth is likely sourced from larger enterprises rather than retail investors. After thorough research and investigation, there is a suspicion that some distressed real estate companies were selling their subsidiaries and/or real estate assets to a special purpose vehicle (SPV) owned by themselves, to buy back their corporate bonds and to report extraordinary profits. The issue arises if this SPV borrowed funds from banks to purchase assets from their parent company. If this suspicion holds true, the reported level of NPLs may not accurately reflect the actual situation, potentially leaving the NPL level at the same or higher levels. In light of these uncertainties, the AFC Vietnam Fund has prudently chosen to avoid exposure to the banking sector for the time being.
Furthermore, we are closely monitoring the market, whose liquidity is currently significantly below the record highs reached during 2021. We anticipate that speculative funds will soon take profits from the banking sector and move to other sectors. We also believe that we will soon experience a robust increase in the mid and small-cap segment, which would align with our strategic portfolio allocation.
Optimistic Stock Market Outlook for 2024
Despite existing economic and banking sector challenges, Vietnamese stockholders collectively express optimism, believing that the worst is behind us. Projections from major brokers indicate a bullish outlook for the Vietnamese stock market in 2024, with the average forecast expecting a 20% increase, closing the year at approximately 1,350 points. Among the brokers, VNDIRECT stands out as the most optimistic, forecasting a 28.4% increase to reach 1,450 points. Meanwhile, MB Securities adopts a more conservative stance, projecting a +13.3% increase to 1,280 points.
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