Research and consultancy, Tabbush Report

Daniel Tabbush

Research and consultancy

Tabbush Report

We provide research and consultancy on Asian banks. Our focus is on what we call “Asian bank research, without the noise.” We are interested in the most critical swing-factors for banks, the NPL and credit cycle, and where we believe there is a gap between perception and reality. We often focus on the less studied components of bank financial statements.  Our research is highly thematic, sometimes examining unlisted banks and companies as a window on mainstream banks. 

Being independent allows us to look at smaller banks, often overlooked by others. Analysis of BIS bank guidelines in the context of Asia, is also a focal point, while we also analyze global banks operating in the region. We use what we believe is the most comprehensive, reliable financials database, SNL Financial. S&P Capital IQ augments our database, with corporate data and CEIC, with economics. 

Asian bank research, without the noise.

Thematic (Sector/Industry)

Many of Asia’s banks have high levels of fixed deposits, and as these mature, they will re-price at lower rates. The scope for margin expansion is considerable. Vietnam’s banks stand out here, as does AMMB and Tisco.

Many of Asia’s banks have high levels of fixed deposits, and as these mature, they will re-price at lower rates. The scope for margin expansion is considerable. Vietnam’s banks stand out here, as does AMMB and Tisco. 

Asian Banks – Funding Costs Can Surprise

Global Bank Equity Specialist, Creative Portfolios

Paul Hollingworth

Global Bank Equity Specialist

Creative Portfolios

Equity Bottom-Up

Vietnam Joint Stock Commercial Bank For Industry and Trade / Equity Bottom-Up

Vietnam Joint Stock Commercial Bank For Industry and Trade

While we remain mindful of certain aspects of Vietnam’s Banking Sector, regarding Provisioning and Capitalization levels as well as other Balance Sheet concerns, we cannot be impressed by another strong PH Score™ quarter, and by the growth generated. Not as good as Pakistan, in terms of PH Score™ but in second place globally. We highlight two of the less expensive institutions.CTG <a href="https://www.smartkarma.com/entities/vietnam-js-commercial-bank-f" target="_blank" data-smartkarma-citation="entities:647:1" rel="noopener">Vietnam Js Commercial Bank F (CTG VN)</a> With a PH Score™ of 8.3, Vietnam JSCB of Industry and Trade commands robust Profitability progression, an expanding NIM, better Efficiency while Capitalization and Liquidity show discrete improvement. This bank has a more muscular profile than SHB though LDR is still too elevated.The shares are somewhat more expensive than we would normally pay for a bank. A FV of 12%, a PBV of 1.39x, and an Earnings Yield of 10% are not unattractive though given the growth underway. They trade above common-sense thresholds of 10%, 1x, and 10%, respectively.  However, these are not “out of sight” valuations and most lower-rated entities have nowhere near the growth that CTG possesses.SHB <a href="https://www.smartkarma.com/entities/saigon-hanoi-commericial" target="_blank" data-smartkarma-citation="entities:17575:1" rel="noopener">Saigon Hanoi Commericial (SHB VN)</a> With a PH Score™ of 10, Saigon Hanoi is progressing. Profitability is expanding with a fatter NIM and a lower CIR. Improvement is broad with advances in Asset Quality, Capitalization, Liquidity, and Provisioning. A “full house” if you like. Caveats stem from a high LDR and D/E, low coverage of NPLs, and still lowly Capital Adequacy and Liquidity Asset ratio levels. This is a softer profile despite the Score than many other Vietnam lenders.A FV of 10%, a PBV of 1.1x, and an Earnings Yield of 12.6% are not unattractive and reflect risk. They trade in close proximity to common-sense thresholds of 10%, 1x, and 10%, respectively.

While we remain mindful of certain aspects of Vietnam’s Banking Sector, regarding Provisioning and Capitalization levels as well as other Balance Sheet concerns, we cannot be impressed by another strong PH Score™ quarter, and by the growth generated. Not as good as Pakistan, in terms of PH Score™ but in second place globally. We highlight two of the less expensive institutions.CTG Vietnam Js Commercial Bank F (CTG VN) With a PH Score™ of 8.3, Vietnam JSCB of Industry and Trade commands robust Profitability progression, an expanding NIM, better Efficiency while Capitalization and Liquidity show discrete improvement. This bank has a more muscular profile than SHB though LDR is still too elevated.The shares are somewhat more expensive than we would normally pay for a bank. A FV of 12%, a PBV of 1.39x, and an Earnings Yield of 10% are not unattractive though given the growth underway. They trade above common-sense thresholds of 10%, 1x, and 10%, respectively.  However, these are not “out of sight” valuations and most lower-rated entities have nowhere near the growth that CTG possesses.SHB Saigon Hanoi Commericial (SHB VN) With a PH Score™ of 10, Saigon Hanoi is progressing. Profitability is expanding with a fatter NIM and a lower CIR. Improvement is broad with advances in Asset Quality, Capitalization, Liquidity, and Provisioning. A “full house” if you like. Caveats stem from a high LDR and D/E, low coverage of NPLs, and still lowly Capital Adequacy and Liquidity Asset ratio levels. This is a softer profile despite the Score than many other Vietnam lenders.A FV of 10%, a PBV of 1.1x, and an Earnings Yield of 12.6% are not unattractive and reflect risk. They trade in close proximity to common-sense thresholds of 10%, 1x, and 10%, respectively. 

CTG: Vietnam Opportunities: Growth of Risk Rather than Risk of Growth

Silver Point

Thomas J. Monaco

Independent Insight Provider

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

Vietnam Technological & Commer / Equity Bottom-Up

* Head Start On Economic Return to Normalcy: Vietnam Technological and Commercial Bank (TCB.VN) [Techcombank] is a long-term winner in the Vietnamese banking sector. Techcombank is Vietnam's largest joint stock bank by operating income and PBT – remaining the country’s most profitable bank from an ROA perspective despite having only a 3% deposit market share. Techombank is also the leader in mortgage, bancassurance, credit cards, and investment banking;  * Sector Credit Risks Are High: As we review each bank individually we continue to find that net new NPL growth ranges between 50%-150% per annum over the past five years through 2019 – despite the stated NPL figure declining on a growthy loan portfolio and placement of problem loans below the line. In our view, Vietnam has essentially done very little to address its legacy NPLs - which we estimate to be over USD 50 bn or 20% of total loans – and the SBV’s newly adopted “extend and pretend” policy will be substantially additive to the current heap of problem assets even if not labelled such; and* Capital Pressures Rising: With almost no end in sight to the growth of net new NPLs (doubling every year), and capital requirements under Basel II being extremely difficult to attain/maintain without prospects of capital raise or shrinking their balance sheets, commercial banks are set to continue to struggle to grow. The draft amendments to a Decree for tax payment deferral and the SBV’s request not to pay a cash dividend confirms Basel II compliance pressures.

* Head Start On Economic Return to Normalcy: Vietnam Technological and Commercial Bank (TCB.VN) [Techcombank] is a long-term winner in the Vietnamese banking sector. Techcombank is Vietnam's largest joint stock bank by operating income and PBT – remaining the country’s most profitable bank from an ROA perspective despite having only a 3% deposit market share. Techombank is also the leader in mortgage, bancassurance, credit cards, and investment banking;  * Sector Credit Risks Are High: As we review each bank individually we continue to find that net new NPL growth ranges between 50%-150% per annum over the past five years through 2019 – despite the stated NPL figure declining on a growthy loan portfolio and placement of problem loans below the line. In our view, Vietnam has essentially done very little to address its legacy NPLs - which we estimate to be over USD 50 bn or 20% of total loans – and the SBV’s newly adopted “extend and pretend” policy will be substantially additive to the current heap of problem assets even if not labelled such; and* Capital Pressures Rising: With almost no end in sight to the growth of net new NPLs (doubling every year), and capital requirements under Basel II being extremely difficult to attain/maintain without prospects of capital raise or shrinking their balance sheets, commercial banks are set to continue to struggle to grow. The draft amendments to a Decree for tax payment deferral and the SBV’s request not to pay a cash dividend confirms Basel II compliance pressures.

Techombank – Still Vietnam’s Best House In A Bad Neighborhood

Bank For Investment And Deve / Equity Bottom-Up

<ul>
<li>
One For the Ages: The Bank for Investment and Development of Vietnam (BID.VN) [BIDV] held a somewhat delusional 2020 Annual General Meeting (AGM). In February 2020, BIDV became the 12th bank to clear its balance due to the VAMC, just as credit quality is likely to take a massive turn for the worse. No doubt it will be hitting up the VAMC for more bonds near-term. To that end, BIDV has already committed to expand its loan bailout to VND 120 tn. BIDV was unfortunately among the Basel II non-compliant despite the sale of a 15% stake to KEB Hana Bank (086790.KS). 2020 forecasts are in the stratosphere and need to come back to earth.</li>
<li>
Reality Check Needed For Vietnam: Fitch Ratings (Fitch) recently lowered Vietnam’s GDP growth to 6.3% from 6.8% in 2020. Given the symbiotic economic relationship between mainland China and Vietnam, we find the Fitch’s GDP growth forecast to be incredibly generous as crisis conditions typically suggest negative GDP growth. The IV Board survey revealed that nearly 30% surveyed had lost between 20-50% of revenues associated with the corona virus, while 60% had lost revenues by over half.  It also suggested that six months of this economic weakness could lead to 74% of surveyed companies to become bankrupt.</li>
<li>
Liquidity Wall: Vietnam is running into a liquidity wall. The sovereign has a high level of public debt (near its 65% debt/GDP cap) – and now growing - which constrains spending while the banking system (as it converts over to the more stringent Basel II capital regime) remains saddled with troubled debt which too has reversed its downward trend - resulting in systemic balance sheet and liquidity constraints.</li>
</ul>



One For the Ages: The Bank for Investment and Development of Vietnam (BID.VN) [BIDV] held a somewhat delusional 2020 Annual General Meeting (AGM). In February 2020, BIDV became the 12th bank to clear its balance due to the VAMC, just as credit quality is likely to take a massive turn for the worse. No doubt it will be hitting up the VAMC for more bonds near-term. To that end, BIDV has already committed to expand its loan bailout to VND 120 tn. BIDV was unfortunately among the Basel II non-compliant despite the sale of a 15% stake to KEB Hana Bank (086790.KS). 2020 forecasts are in the stratosphere and need to come back to earth.

Reality Check Needed For Vietnam: Fitch Ratings (Fitch) recently lowered Vietnam’s GDP growth to 6.3% from 6.8% in 2020. Given the symbiotic economic relationship between mainland China and Vietnam, we find the Fitch’s GDP growth forecast to be incredibly generous as crisis conditions typically suggest negative GDP growth. The IV Board survey revealed that nearly 30% surveyed had lost between 20-50% of revenues associated with the corona virus, while 60% had lost revenues by over half.  It also suggested that six months of this economic weakness could lead to 74% of surveyed companies to become bankrupt.

Liquidity Wall: Vietnam is running into a liquidity wall. The sovereign has a high level of public debt (near its 65% debt/GDP cap) – and now growing - which constrains spending while the banking system (as it converts over to the more stringent Basel II capital regime) remains saddled with troubled debt which too has reversed its downward trend - resulting in systemic balance sheet and liquidity constraints.


BIDV – KEB Hana Has To Be Kicking Itself Now

Financials Credit Analyst

Hank Calenti, CFA

Credit

Spread tightening at the beginning of the week caught market concerns regarding the coronavirus outbreak. Profit taking before the Lunar New Year also likely contributed to spread reversal. As the week began, yields on double-B rated US$-bonds fell to their lowest levels ever while high yield bonds over-all hovered just above all-time lows of 4.83%.  By the end of the week, Asian bank Subordinated US$-bond spreads were wider while Asian bank Senior Unsecured US$-bonds were largely unchanged. Each High Yield Asian bank Subordinated bond that we track widened, possibly on coronavirus concerns. We expect the economic fallout from attempts to contain the virus to pressure Asian bank subordinated debt bonds over the near term.In Asia’s new issue market, Indonesian real estate developer, <a href="https://www.smartkarma.com/entities/bumi-serpong-damai-pt" target="_blank" rel="noopener" data-smartkarma-citation="entities:15498:1">Bumi Serpong Damai (BSDE IJ)</a> brought a five non-call three-year “Ba3” rated US$-bond to the market with a 5.95% coupon. At the same time, demand for deeply subordinated new issue bonds remained high and the Republic of the Philippines brought a nine-year Euro-bond to the market with a negative concession. Pricing of the Philippine government bonds may bode well for similar maturity Philippine bank bonds and could open a wider market for longer dated Philippine bank paper.  We highlight debt capital new issue that may have potential implications for Asian bank debt in this weekly report.

Spread tightening at the beginning of the week caught market concerns regarding the coronavirus outbreak. Profit taking before the Lunar New Year also likely contributed to spread reversal. As the week began, yields on double-B rated US$-bonds fell to their lowest levels ever while high yield bonds over-all hovered just above all-time lows of 4.83%.  By the end of the week, Asian bank Subordinated US$-bond spreads were wider while Asian bank Senior Unsecured US$-bonds were largely unchanged. Each High Yield Asian bank Subordinated bond that we track widened, possibly on coronavirus concerns. We expect the economic fallout from attempts to contain the virus to pressure Asian bank subordinated debt bonds over the near term.In Asia’s new issue market, Indonesian real estate developer, Bumi Serpong Damai (BSDE IJ) brought a five non-call three-year “Ba3” rated US$-bond to the market with a 5.95% coupon. At the same time, demand for deeply subordinated new issue bonds remained high and the Republic of the Philippines brought a nine-year Euro-bond to the market with a negative concession. Pricing of the Philippine government bonds may bode well for similar maturity Philippine bank bonds and could open a wider market for longer dated Philippine bank paper.  We highlight debt capital new issue that may have potential implications for Asian bank debt in this weekly report.

Asian Bank HY Credit Weekly: Coronavirus Offsets Positive Issuance News in Asian Credit Spreads

Vietnam

Saigon - Hanoi Commercial Joint Stock Bank provides commercial and personal banking services.

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Saigon - Hanoi Commercial (SHB VN)

Asian Banks – Funding Costs Can Surprise

Many banks have high levels of fixed deposits. As these mature, they re-price at lower rates. The scope for margin expansion is considerable....

Daniel Tabbush

CTG: Vietnam Opportunities: Growth of Risk Rather than Risk of Growth

Vietnamese banks continue to perform well on the PH Score. This is a tailwind. Valuations of these featured lenders are not stretched given trends...

Paul Hollingworth

Techombank – Still Vietnam’s Best House In A Bad Neighborhood

* Head Start On Economic Return to Normalcy: Vietnam Technological and Commercial Bank (TCB.VN) [Techcombank] is a long-term winner in the...

Thomas J. Monaco

BIDV – KEB Hana Has To Be Kicking Itself Now

One For the Ages: The Bank for Investment and Development of Vietnam (BID.VN) [BIDV] held a somewhat delusional 2020 Annual General Meeting...

Thomas J. Monaco

Asian Bank HY Credit Weekly: Coronavirus Offsets Positive Issuance News in Asian Credit Spreads

Spread tightening at the beginning of the week caught market concerns regarding the coronavirus outbreak. Profit taking before the Lunar New Year...

Hank Calenti, CFA

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52-week Range

Market Cap (USDm)

P/E

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