Bank shares on downward trend
25-JUL-2008 Intellasia | 23/Jul/2008 Dau Tu Chung Khoan page 30
Jul 25, 2008 - 7:00:00 AM
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Prices of bank shares strongly increased in several trading sessions early last week. However prices of bank shares sharply dropped to all-time low levels early this week.
According to Mai Thi Bich Phuong, EPS Securities Co's investment relation manager, prices of bank shares in the OTC market sharply fell. The selling amount was large while the buying amount was small. This further pushed down prices of bank shares.
By this time, prices of bank shares fell by some 35% within only one week. Namely, prices of shares of the Vietnam Export and Import Commercial Bank (Eximbank) that were considered to have the best liquidity among bank shares, dropped to only 20,300 dong a share early this week from 26,000-27,000 dong a share early last week. Prices of Vietnam Bank for Foreign Trade (Vietcombank)'s shares also lost by nearly 15,000 dong a share to 37,000 dong a share this week. Prices of the Military Bank (MB)'s shares decreased to only 13,700 dong a share on July 22 compared to 23,000 dong a share last week.
Such a downward tendency was understandable because last week prices of bank shares in the OTC market were strongly pushed up by brokers based on the growth of share prices in the listed market. Thus, when the listed market presented a downward correction, prices of shares in the OTC market in general and prices of bank shares in particular inevitably reduced. However transactions of bank shares were still hard to be successful because of weak demand.
According to many securities specialists, facing up high pressure on credit tightening, the banking industry will meet various difficulties. Particularly, boosting the petroleum price to 19,000 dong a litter will present certain impacts on inflation, causing difficulties for banks in raising capital.
Input costs increase in accordance with deposit interest rates that are now prevailing at 18-18.5% a year. Meanwhile, when offering loans, banks are only allowed to set lending interest rates at 21% a year or less. Another significant difficulty at some banks is that real estate loans have not yet been collected thoroughly in order to reduce credit balance to the allowed level regulated by the central bank this year.
The State Bank of Vietnam (SBV) said that by early this year, value of mortgaged real estate at banks accounted for some half of total assets of the banking system, real estate lending balance some 135 trillion dong, or about 10.8% of total outstanding loans of the whole banking system. Thus, some banks, although being abundant of disposable incomes, still are not allowed to offer loans to new clients.
Profits of banks in the first half mainly come from loans that are the remaining capital from the previous year, forex and gold trading services, and some other service channels. However that does not absolutely facilitate banks in the second half. The sharp fluctuation of gold prices from 16 million dong a tael to 19.5 million dong a tael would expectedly not happen in the remaining six months. Additionally, the scarcity of deposits together with credit tightening will pull profits and revenue down, making bank shares less attractive.
In fact, although banks still reported high business results in the first six months, some financial specialists said that incomes from interest rates significantly slashed. Even, some banks posted zero incomes from lending interest. In the first half, some small banks reported weak liquidity, hence, they had no way but to push up deposit interest rates in a bid to ensure liquidity while closing loans.
Furthermore, bank shares in the OTC floor depends movements of the listed market. However, amidst the current situation, prices of shares in the OTC floor are being impacted by macro-economic factors. Bank shares also follow such a rule until inflation is reined at a low rate. Nevertheless, many people said that this is a good opportunity for investors to buy shares because prices of bank shares are now relatively cheap. Once the economy recovers, the banking sector will be improved at first.
Analysts from the Bao Viet Securities Co (BVSC) said that this is the good time to invest into commercial banks in Vietnam. Phuong said that if prices of bank shares slash by another 10-15%, this will be a good opportunity to buy bank shares. However, investors should choose banks of large scale that have high competitive capacity and good growth potential because success in investment depends on different banks. Meanwhile, highly appreciated bank shares are shares of large-scaled banks such as Vietcombank, ACB, Sacombank, Techcombank, Eximbank, Eastern Asia Bank, MB and others.
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