Bank shares swim against the tide

TrBank shares are showing signs of recovery on the back of heavy trading on both the stock exchange and the unofficial over-the-counter (OTC) market, though analysts remain sceptical how long the trend will last.

On the OTC market, bank shares slipped 40-50 per cent in late June, but rebounded 10-15 per cent in recent sessions.

The mild rebound comes at a good time for many investors, considering the State Bank of Viet Nam has just set a deadline for financial institutions to limit loans on securities investments to 3 per cent of total outstanding debt by the end of December. Investors do not have the cash resources they once had at the start of the year.

"After the State Bank directive aimed at curbing risky lending practises, we do not have a lot of money to buy high-value shares, so the cheaper bank stocks are a suitable choice," said a retail investor at An Binh JSB, commonly known as ABBank, in a recent interview.
Investors hope banks will continue to gain momentum in the weeks ahead, or at least help them ride out this period of inactivity in the market.

"In this dull market, the positive financial results from the joint stock banks have really given us hope. Look at Asia Commercial Bank [ACB]; it earned a pre-tax profit of VND880 billion (US$55 million) in the first half of the year against VND700 billion ($43.75 million) in the whole of last year," said Le Mai Phuong, a retail investor at ACB Securities.

Though, analysts remain concerned how much higher share prices can go. A senior executive at Kim Long Securities said current prices closely reflect the real value of the banks and that prior to the 40 per cent drop in June shares were grossly overvalued.

Bank shares, though, provide a certain safety net for investors in short term trading - their liquidity tends to be much higher than in most other sectors. Liquidity plays an important factor for investors who need to adjust their portfolios quickly in case of more monetary tightening by the State Bank or to purchase shares in initial public offerings.

"It is quite reasonable that investors prefer bank shares over others. Banks have higher liquidity and bigger daily trading volumes," said the Kim Long analyst.

Another factor in recent weeks has been mid-year earnings, which have not played a major role in spurring trading activity but have acted as a barometer for the sector in the mid to long run - assets and loans continue their healthy growth while most large financial institutions recorded profits.

"The recent rise and fall of share prices are not due so much to performance as lending and revenue have strongly increased.
Moreover, some banks have reported extra-ordinary investment gains. These results reflect the good health of the banking system," said Dominic Scriven, director of Dragon Capital.

Extra ordinary gains include stock offerings; when Sacombank sold shares to ANZ Bank, for example, the local financial institute received US$27 million in the deal, which not only helped its bottom line but also spurred trading activity. In the long run, the deal will help Sacombank improve services with its new, well-established partner advising on management training and technology upgrades.

There are a number of factors, though, that will likely keep bank stocks in check over the coming months. In recent weeks, prices have been cut following the release of HSBC and Merrill Lynch reports indicating there is little upside to the market at current price levels with a lack of new information to stimulate trading.

"It’s hard to say if shares prices will currently increase or remain unchanged. I think, after the latest Merrill Lynch report, investors will quickly dump shares and ignore losses, which might put pressure on stock prices for now," said ACB spokesman Nguyen Thanh Toai.

Another factor that will weigh on bank stocks is the list of 21 initial public offerings the Government intends to hold as it equitises State-owned enterprises during the second half of the year. The equitisation includes the country’s four largest banks.

"I am not too interested in bank shares right now as the market is so dull. I am instead waiting for the high quality shares of leading State-owned commercial banks over the next few months," said a retail investor at Bao Viet Securities. "Individual investors like me do not have much money to invest, so we must save up for the IPOs now."

The four State banks - Vietcombank, Incombank, Mekong Housing Bank and BIDV - will add another VND18–20 trillion ($1.12-1.25 billion) worth of shares to the market, according to Bank for Investment and Development of Viet Nam (BIDV) General Director Tran Bac Ha.

Central bank officials have also indicated the joint stock banks have submitted forms to increase their charter capital by the end of the year, pursuant to Government regulations. A popular way for companies over to do this is to dilute stock values by auctioning more shares.

The flood of new stocks could keep already listed banks or those trading on the OTC market under a degree of price pressure over the next five months, say analysts.

"Though the appearance of shares in [the country’s four] leading banks may encourage another market correction, the correction will help the market develop steadily in the long run," said Ha.

Source: VNS