Vietnam banks topping world are still tempting to Dragon Capital

By Giang Nguyen, Bloomberg

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To get a sense of how Vietnam has emerged from its bad-debt crisis of three years ago, consider the following.
Shares of the nation’s three biggest banks have climbed an average 62 percent this year, with Bank for Investment & Development of Vietnam being the best-performing frontier-market stock of 2015. Non-performing loans as a proportion of all lending are about one sixth of their levels from three years ago and loans for real-estate purchases are booming.
Little surprise, then, that investors such as Dragon Capital Ltd., the country’s second-biggest asset manager, and Maybank Kim Eng Securities Ltd. are so bullish on Vietnamese banks, even as valuations soar.
"Next year, banks will lend more money and profits will take off," said Bill Stoops, who’s been adding bank stocks to the $1.3 billion he helps oversee as chief investment officer at Dragon Capital in Ho Chi Minh City. "There’s still room for further gains." 
That confidence is testament to government efforts to haul the country’s banking industry from soured loans that weighed on economic growth for three years and resulted in the jailing of several bank executives. The country’s central bank has forced some lenders to merge and others to go bankrupt as it plans to reduce the total number of banks to as few as 15 by 2017 from nearly 40 now.
BIDV, Vietnam’s second-biggest lender by market capitalization, has surged 90 percent in 2015. JSC Bank for Foreign Trade of Vietnam, the largest, has rallied 50 percent and Vietnam Joint Stock Commercial Bank for Industry & Trade has advanced 47 percent. The MSCI Frontier Markets Index has fallen 13 percent.
The nation’s benchmark VN-Index fell 0.3 percent as of 10:16 a.m. on Thursday. Shares of BIDV, Bank for Foreign Trade and Bank for Industry & Trade slid at least 0.4 percent.
Non-performing debt at the nation’s lenders dropped to about 2.9 percent as of September from 17 percent in 2012 as the nation’s state-backed asset-management company bought 91.3 trillion dong ($4.08 billion) of troubled loans this year alone. The State Bank of Vietnam has also taken the unprecedented step of nationalizing some lenders. Some 30,000 real estate transactions were recorded in the first nine months of 2015, similar to the figure for the whole of 2014, Vietnam Plus reported, citing Vietnam Real Estate Association Chairman Nguyen Tran Nam.
Most expensive
BIDV trades at 12.3 times reported earnings, while Bank for Foreign Trade is valued at 25.2 times and Vietnam Joint Stock Commercial Bank for Industry & Trade, the third biggest, has a multiple of 13.2. The Frontier Market index trades at 10.6 times.
That’s still too high for James Bannan, who runs the $140 million Frontier Markets Fund at Coeli Asset Management SA in Sweden. Vietnamese banks are some of the most expensive in the frontier universe, he said.
Valuations are justified by Vietnam’s improving economic prospects, according to Patrick Mitchell, Ho Chi Minh City-based director of institutional marketing at Maybank Kim Eng Securities.
Vietnam’s 2015 credit growth is forecast at 17 percent, the highest since 2011, said Prime Minister Nguyen Tan Dung. The government is predicting the economy will expand 6.7 percent next year, which would be the fastest pace in nine years, girded by exports and foreign investment. PricewaterhouseCoopers LLP estimated earlier this year that Vietnam will have one of the world’s fastest-expanding economies through 2050.
“Given the positive macro environment and pick-up in the property market, we expect to see banks perform well,” Mitchell said.

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