The spillover effect
The reduced benchmark interest rate – which will match the level set in 2022 – is expected to have a spillover effect across the economy, including many key sectors such as industry and construction; Service; Agriculture, forestry and fisheries and thus contribute to economic growth.
For the third consecutive year since early 2023, the State Bank of Vietnam (SBV) cut the operating interest rate by 0.5 percentage points. The regulator’s move to cut interest rates on May 23 is not just to improve people’s and businesses’ access to capital, thereby boosting consumer demand and restarting production and business in the near future. Credit demand is still weak, which helps to accelerate the recovery process of the economy.
Interest rates have cooled, bank stocks have a lot of potential for stable growth. Picture: ST.
The GDP growth rate was only 3.32% in the first quarter, lower than the same period in previous years. At the same time, the Purchasing Managers’ Index (PMI) slipped to 50 points in April. In the first three months of the year, credit growth was slow compared to the same period last year — only about 3% compared to the end of 2022.
The above factors, along with the continued downward momentum in inflation while the exchange rate was anchored at a stable level, set the stage for the operator to further ease monetary policy to encourage investment in core areas. Core.
The falling operating interest rate will gradually lower the lending rate to low levels – likely over the next three to six months – thereby boosting credit demand for companies borrowing for investment, production and business purposes. In addition, with cheaper borrowing costs, people can access capital for consumption, thus increasing business orders. These are two factors that are expected to actively support economic growth in the coming period.
“Term deposits will be less attractive due to lower interest rates, which may help increase the amount of CASA funds, thereby helping reduce the cost of raising capital for banks,” Yuanta Securities Co. said in a recent report.
In addition, the problem of bank provisioning will be partially alleviated in the near term as interest rates are lowered to help borrowers ease the burden of interest payments and meet their debt service obligations on time. Risky assets, including stocks, will also benefit from the rate cut, according to Yuanta.
Welcoming a large flow of capital
Lower interest rates help cash flow find other investment channels to replace savings channels, such as the stock market – with a focus on bank stocks if this is one of the industries with sustained growth potential that will offer investors excellent returns over the medium to long term offers term.
According to BSC Securities Company analysis, when the operating interest rate falls – there have been 29 interest rate cuts since 2000 – the stock market typically tends to rise thereafter. From 2000 to 2023, after each rate cut by the operator, the market saw an average increase in the VNIndex of 1.17%, 2.56%, and 13.6%, respectively, 1, 3, and 6 months later. It is worth noting that the three rate cuts in 2020 saw the VN index rise by 17.89%, 13.31% and 31.03%, respectively, six months after the interest rate adjustment policy took effect.
Notably, many sectors are posting positive growth following recent rate hikes – the refinancing rate cut (March 31, 2023), the discount rate cut (March 14, 2023) and the operating rate cut by 1% (September 30, 2020). recorded. , including retail, real estate, financial services and banking, within 1 to 6 months after the announcement of the operating interest rate reduction policy.
“In general, industries are reacting positively to this news in the short and medium term,” BSC said.
For the financial banking sector in particular, due to the growth prospects of the industry and each bank, securities firms share the same assessment that many banks will grow slowly in the short term given the challenges ahead. In 2023, however, once the economy recovers faster, the profitability cycle and banks’ strong growth rate will continue for the next three to four years.
“In the 3-4 year cycle, we still see plenty of room for Vietnamese banks to post strong growth drivers (loan growth around 14%, NIM around 4% and earnings growth around 4%). Fees over 20%,” Maybank Securities said.
According to Maybank, over the past four years (2019-2022), publicly traded banks have generated over 25% annual returns on capital for investors who buy bank stocks as part of a buy-and-hold strategy. Some banks like VIB, SHB and VP Bank have even generated an average return of 35-50% for these investors in the last 4 years.
In addition, this securities company also believes that the valuation of Vietnamese banks is at a low level after the corrections in the stock market and the freeze in the bond market. Bank stocks are accordingly trading at an average of 1.3x P/E in 2022 and 1.1x P/E in 2023 – low compared to return on equity (ROE). strength of the banks.
These include TCB, VCB, MBB, VPB and BID…