Credit to large corporations outpaced retail and SME lending during 1H2020, however, retail and SME lending showed signs of recovery beginning 3Q.

Banks with Good Digital Platforms and/or Zero-fee Policies in Place Taking More Retail CASA Market Share
Through 9M 2020, PBT within SSI’s coverage universe amounted to VND 86.2 tn, up +11% YoY. Despite lower growth compared to the PBT increase of 26.9% YoY during the same period last year, banking sector performance still outshined other sectors.
JSCBs were the main driver of PBT through Q3, with PBT rising +18.6% YoY. In the meantime, PBT of SOCBs improved by only +0.9% YoY. This could be explained by strong credit growth in private banks (+12.9% YTD) who took more share from stateowned banks (+3.4% YTD of credit growth). 
Digitalization has accelerated across the sector and should lessen the relative importance of branch expansion strategies over time.
Banks with good digital platforms and/or zero-fee policies in place (TCB, TPB) are taking more retail CASA market share.
Credit to large corporations outpaced retail and SME lending during 1H2020, however, retail and SME lending showed signs of recovery beginning 3Q.
SSI forecasts pretax profit for our coverage to increase slightly by +4.9% YoY in 2020. However, SSI’S earnings outlook differs amongst JSCBs and SoCBs, as the latter have suffered profit contraction in 2020 from large-scale supportive credit packages to support customers hit by Covid-19.
As a result of the Covid-19 pandemic, credit growth slowed in 2020. In detail, credit growth was stagnant during 1H2020, achieving a mere 1.3% YTD by March 2020. However, signs of recovery started to flash in late June after the partial lockdown in Vietnam during April and May. Banking sector total credit growth amounted 6.1% YTD by the end of 3Q2020 and accelerated to 10.1% as of December 21, 2020.
Among banks under our coverage, total credit increased +7.5% YTD by 3Q 2020 – about 19% higher than the increase in Q2. SOCBs exhibited rather modest growth (+1.1% QoQ and +3.4% YTD) while we saw an accelerated disbursement of credit within the JSCB subcohort (+5.3% QoQ and +12.9% YTD).
Lending was boosted by corporations and corporate bonds in 1H 2020, while retail lending showed signs of recovery in 3Q 2020, especially at BID, MBB, and HDB.
Some banks voraciously invested in corporate bonds. Decree 81, which restricted the issuance of corporate bonds since September 2020, spurred companies to accelerate issuance in July and August 2020. As a result, Q3 corporate bond issuance volume soared to VND 164.4 tn (+95% YoY). Total corporate bonds owned by commercial banks increased VND 43.5 tn in 3Q 2020 to VND 207 tn (+69.5% YTD), of which the strongest increase was seen at TCB, SHB, VPB, MBB, and TPB.
In Q3, the SBV relaxed the credit growth for many JSCBs for the second time during the year; the highest credit growth cap in the sector was 23% at TCB, TPB, and VIB. Later in November and December, credit growth caps were further lifted for a few JSCBs and VCB. The central bank estimates credit growth for 2020 at 11% YoY. 
While this is lower than the 13.7% achieved last year, it is still better than initially expected. As at 21 Dec 2020, credit for the export sector expanded by +10.4% YTD, for agricultural and rural areas by +9.8% YTD, and for SMEs who were hard hit by Covid-19 by 11% YTD.
Average deposit growth was much higher than credit growth during 2020, resulting in an abundance of liquidity with a more subdued LDR across the sector and a sharp downward trend in deposit interest rates. The average LDR ratio also dropped to the lowest levels, compared to the previous two years.
NIM contracted in 2Q due to reduced interest, interest exemptions, and restructured loans (2.1% of total credit). Going to 3Q, the NIM recovered significantly to 3.67%, the highest level recorded over the last 12 consecutive quarters. This was due to falling deposit rates, CASA improvement, and gradual expiry of preferential loan rate packages to customers affected by Covid-19.
To support the economy, the central bank reduced regulatory rates three times. The central bank also reduced the cap on deposit rates -60 bps; and -100 bps for tenures between one-month and six-months. By the end of July, the sector had reduced deposit rates -90 bps to -210 bps YTD across all deposit tenures. 
Deposit rates continued to decline in 3Q 2020, dropping 50-175 bps across all terms. This suggests that the total reduction during 9M 2020 amounted to between 150-250 bps. In 4Q 2020, SSI estimates deposit interest rates will slide further between -15 to -40 bps compared to 3Q 2020, further reducing funding costs of the sector in general.
The CASA ratio also increased across the sector (ex-VIB). The average CASA level at the 13 banks under coverage reached 20.9% (September 30, 2020), the highest level in the past three years, from their trough of 18.6% (March 31, 2020). Thus, funding costs have declined -24 bps in 3Q 2020, (-37 bps during 9M 2020).
Meanwhile, the average IEA yield rose +15 bps QoQ to 7.81%, as the previously implemented preferential loan rate packages to customers affected by Covid-19 gradually expired over the course of 3Q 2020. The spread between IEA yield and funding costs has expanded.