VIETNAM NATIONAL UNIVERSITY UNIVERSITY OF ECONOMICS AND BUSINESSFACULTY OF FINANCE AND BANKING NR GGvy EXAMINING THE IMPACT OF COVID-19 ON THE CONNECTEDNESS AMONG VIETNAMESE BANK STOCK P
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Bank stocks remain a compelling investment option for both domestic and foreign investors, particularly in Vietnam, where foreign interest continues to grow Currently, banking stocks represent the largest share on the Ho Chi Minh Stock Exchange (HOSE), boasting a market capitalization of $8.9 billion The Vietnamese banking sector has gained prominence in financial performance compared to other ASEAN markets, including Indonesia, Malaysia, the Philippines, Singapore, and Thailand While investors should consider factors like bad debt ratios and potential policy changes that may impact the industry, the shift from cash to digital banking presents significant opportunities for growth However, the recovery in this sector is not entirely stable, as underlying risk factors persist, leaving investors uncertain about the viability of banking stock investments.
The banking sector is still the industry group that attracts huge investors in the market The liquidity of this industry group is always the largest, possibly accounting for 30-
The banking sector's transaction values significantly influence overall market dynamics, with fluctuations in this sector directly impacting cash flow attraction Given the limited research on the factors affecting banking stock prices during the COVID-19 pandemic, it is essential for investors to analyze these influences to make informed decisions.
Analyzing bank stocks is crucial for investors, especially considering the pandemic's significant impact on their market values Investors must evaluate these fluctuations to make informed decisions regarding market participation and portfolio management Additionally, commercial banks need to understand the pandemic's effects on stock prices to guide their capital mobilization and dividend policies The author has extensively researched previous studies from reputable sources to accurately frame the research problem related to the COVID-19 pandemic's influence on the stock market, particularly within the banking sector, noting that there are currently few comprehensive studies available on this topic.
Vietnam's banking stocks have been significantly influenced by the COVID-19 pandemic, with a study examining the effects during key peak periods Research from 2020 highlights the varied responses of investors during the three major lockdowns that year (Phuong, 2021).
This research aims to assist investors in making informed decisions regarding banking stock investments by analyzing the interconnectedness of banking stock prices in the Vietnamese market from 2019 to 2022 It specifically evaluates how COVID-19 has affected this interconnectedness, leading to the topic "Examining the impact of COVID-19 on the connectedness among Vietnamese bank stock prices."
The objective of the research is identify, consider and determine the extent of the connectedness in the prices of the banking stocks in Vietnamese stock market from 2019 to
2022, and to evaluate the influence of COVID-19 on such connectedness.
- What factors can affect stock prices on Vietnam's stock market in recent years?
- Is there a connectedness in stock prices of commercial banks on Vietnam's stock market?
- How does the COVID-19 influence the connectedness in stock prices of commercial banks on Vietnam's stock market?
- Time range: The price movement of the listed commercial bank shares in the two years 2021-2022.
- Spatial scope: Banking stocks on the stock market in one country, Vietnam, including
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- Chapter 2: Research overview and theoretical basis about impact of COVID-19 on
- Chapter 3: Data descriptions and research methods
- Chapter 4: Results of impact of COVID-19 on Vietnam’s bank stock prices
LITERATURE REVIEW 1 T14 ,),Á,.).))
SUMMATY StatiStiCs oe
The analysis of skewness and kurtosis reveals that the majority of bank stock series exhibit leptokurtic characteristics and slight left skewness Among the 18 banks studied, BID, CTG, TPB, VPB, SSB, SHB, MSB, MBB, HDB, ACB, and BAB display heavier tails compared to a normal distribution, while VCB, TCB, VIB, STB, OCB, LPB, and EIB show lighter tails Additionally, TCB, VIB, STB, and OCB are identified as negatively skewed, whereas the remaining bank stocks are positively skewed.
The analysis of data from JB indicates that the stocks of the 18 banks listed do not adhere to a normal distribution Additionally, the ERS index verifies the stationarity of the time series, revealing that all 18 banks' stocks are stationary and demonstrate an ARCH/GARCH pattern.
4.1.2 The development and volatility of bank stocks
The Vietnamese stock market sees banks representing approximately 25% of its total market capitalization, significantly influencing the VN-Index's price movements In 2021, the banking sector disappointed many investors, grappling with challenges such as lowering actual lending interest rates while managing potential bad debts Despite these hurdles, the banking system overall reported positive outcomes, with the "Big 4" banks achieving their profit targets: VietinBank at 16.8 trillion dong, BIDV at 13 trillion dong, Agribank exceeding 14 trillion dong, and Vietcombank at 25.58 trillion dong.
The COVID-19 pandemic has prompted countries to adopt low interest rate policies, significantly impacting banks' profits from traditional products The reduction in short-term interest rates results in decreased interest income for banks, affecting the average interest rates and the term structure In countries with low or negative interest rates, banks face even greater challenges to their net interest income To mitigate these losses, banks are increasingly turning to alternative revenue sources, such as enhanced services and Digital Banking products Additionally, the pandemic has induced considerable instability and volatility in the global capital markets and stock markets.
35 has reduced the share price of banks The financial sector was one of the most affected, with bank valuations falling in all the countries of the world.
In 2022, TCB, VPB, MBB and STB are rated as the 4 most active banking stocks, ACB and VCB are the leading representatives for the defensive basket of stocks.
Techcombank's impressive CASA ratio of 49% and the lowest cost/operating revenue ratio in the banking sector position it favorably for growth in both retail and wholesale banking, as noted by VCSC (2022) The bank's low financial leverage of approximately 6.1 times, coupled with strong capitalization, offers a solid capital buffer for future expansion Additionally, strategic partnerships with Vingroup and Masan further enhance its growth potential.
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Vietcombank stands out as the top bank on its watchlist, recognized for its high-quality customer base and careful provisioning The securities company is optimistic about Vietcombank's growth potential, driven by private capital placements and advancements in the insurance sector.
VCB's leadership reports that approximately 40% of loan balances have been impacted by the prolonged COVID-19 pandemic As a result, the bank faces significant uncertainties and challenges in the fourth quarter, which has adversely affected VCB's share price.
Figure 4.2 Stock return of BID
BIDV's BID shares in 2022 accumulate in a long-term triangle for 2 years from January
2020 to the end of December 2021.
In the first trading sessions of 2022, BID stock showed signs of breaking the accumulation triangle in an uptrend and a high probability of a Clear Breakout.
BIDV has successfully settled all bonds with the Vietnam Asset Management Company (VAMC), which specializes in managing assets for credit institutions in Vietnam The bank is also on track to finalize the establishment and resolution of all bad debts as part of its 2021 Restructuring Project With the majority of outstanding bad debts already provisioned, BIDV is alleviating the pressure associated with further provisioning requirements.
2022 onward will be significantly reduced, helping profits grow strongly Thereby promoting the potential to increase BIDV's stock price.
Figure 4.3 Stock return of CTG
Vietinbank has successfully met the capital adequacy ratio (CAR) requirements outlined in Circular 41 (Basel II) The bank anticipates a feasible credit growth plan of 8-12% per year over the next three years Additionally, Vietinbank is seeking to increase its credit growth limit for 2021, as credit demand in the first half of the year has shown positive results.
The COVID-19 pandemic is projected to reduce CTG's profits by 11.2%, yet the recent decline in its stock price has created a compelling opportunity for investors, positioning the stock as an affordable option with significant potential for recovery post-pandemic.
Figure 4.4 Stock return of TCB
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Techcombank is currently exposed to three significant risks: the potential denial of an additional credit line, challenges in sustaining its CASA (Current Account Savings Account) ratio, and the ongoing impact of the COVID-19 pandemic, which could lead to an increase in bad debt.
In 2022, Techcombank's profit after tax may increase by 16.6% to reach 21,017 billion, the profit margin ratio (NIM) will reach 5.59%, the bad debt ratio will be at 0.7%.
Figure 4.5 Stock return of TPB
TPBank reported a remarkable 14.2% increase in after-tax profit, reaching VND 1,623.1 billion compared to the same period last year, successfully achieving 23.8% of its annual profit forecast for 2022 The bank boasts a robust customer base, strong liquidity, and a leading digital banking platform, reinforcing its competitive position in the financial sector.
Figure 4.6 Stock return of VPB
In 2022, VPBank experienced a positive shift due to the involvement of strategic shareholders, which aimed to enhance the Capital Adequacy Ratio (CAR) and boost interbank foreign exchange deposits This strategic participation also focused on improving the CASA ratio, optimizing operational benefits between FE Credit and VPBank, and strengthening the consumer finance segment.
In 2022, VPBank's cost of capital is expected to stabilize at 4%, while profit after tax is projected to rise by 38.4% to VND 17,027 billion Additionally, the non-performing loan (NPL) ratio is anticipated to improve, decreasing by 29 basis points compared to the 2021 forecast.
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VIB has demonstrated strong credit performance due to its focus on retail customers, characterized by high profit margins and low risk The significant interest rate hikes at the end of 2022 have been passed on to borrowers, resulting in an average loan interest rate that exceeds the increase in input costs Consequently, VIB's net interest margin (NIM) has shown remarkable improvement over the years, achieving nearly 5% by 2022.
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CONCLUSION . cà HH HH HH HH1 1e gờt 58
Summary of research results 7 6 ẽ
The research indicates that the COVID-19 pandemic has significantly affected stock price volatility among commercial banks in the Vietnamese stock market, both directly and indirectly The pandemic prompted a global shift towards low interest rate scenarios, which negatively impacted the profits of banks relying on traditional core products Despite these challenges, the study found that the stock prices of 18 banks increased during the 2021-2022 period, with most of these banks experiencing an upward trend in their stock prices amidst overall market volatility.
Research indicates that the primary shock agents influencing stock prices include VPB, TPB, BID, ACB, MBB, and HDB Additionally, CTG, VCB, MSB, SSB, and SHB also contribute to shock transmission, albeit to a lesser extent OCB is identified as the most affected bank, with TCB, BAB, STB, VIB, EIB, and LPB experiencing lesser impacts Notably, all banks serve as shock agents to OCB, while VPB and BID specifically act as shock agents for LPB.
The TCI indicates a strong correlation among stocks, reaching up to 91.13% Notably, VIB and STB were responsible for the highest shocks at 94.68%, while SSB contributed the least with 82.26% Conversely, ACB experienced the most significant shocks at 123.22%, whereas OCB faced the lowest shocks at just 16.68%.
Banking stocks have experienced an upward trend in profit margins, with commercial banks showing a gradual increase in stock prices since 2021 Initially, growth was slow, but the COVID-19 pandemic accelerated the opening of a new economic cycle Additionally, the swift and unprecedented monetary interventions by central banks have bolstered economies, enabling the stock market to recover from the impacts of the pandemic.
The recent surge in banking stocks is driven by optimism regarding the government's capacity to foster economic recovery, a consensus among market analysts suggesting that bank stocks are undervalued, and confidence in the actual value and profitability of listed banks.
For investors, it is crucial to identify and assess the factors that impact bank stock prices to make informed forecasts and investment decisions Thus, a key recommendation is to thoroughly and thoughtfully evaluate these influencing factors.
While individual investors often focus on natural factors in the market, it's crucial to prioritize micro factors and the unique characteristics of each bank Although banking stocks are generally perceived as stable and low-risk, they tend to offer returns that rarely exceed the broader market With the pandemic largely under control and the economy stabilizing, the stock price volatility of listed commercial banks remains relatively low Therefore, investors should concentrate on the specific attributes of individual banks to make informed decisions when buying and selling stocks.
In corporate governance of investment portfolios, it is essential for investors to develop a staged business structure plan Typically, bank share prices exhibit cyclical fluctuations, prompting investors to integrate insights on major economic trends and government interest rate policies This approach enables them to effectively adjust their portfolios to align with varying market conditions.
Regulators must enhance listing standards on stock exchanges to maintain the integrity of commercial banks and protect the overall reputation of the banking sector By tightening regulations and establishing clear requirements for charter capital and asset quality profitability indicators, sustainable growth can be achieved for banks with strong yields This approach is particularly vital as large-scale listed banks increasingly adopt technology and innovate their products and services.
Vietnam's legal framework currently lacks specific regulations for the issuance, trading, and exchange of shares, virtual currencies, and virtual assets Additionally, there is no designated authority to oversee the management of these activities, leading to an unregulated environment for buying and selling virtual currencies and assets.
59 currency exchanges are still outside the regulation of the law, not under the management of any authorities.
In Vietnam, over 30 non-bank organizations are licensed by the State Bank to offer intermediary payment services and e-wallets, highlighting the growing influence of virtual money and assets To safeguard against potential risks, the Government must implement recommendations and regulations ensuring that all entities providing these services comply with laws aimed at preventing money laundering and terrorist financing, including registration and licensing requirements.
5.3 Research limitations and directions for future studies
Despite extensive efforts in exploring various prior studies, formulating a topic, choosing research methods, and designing research models with thorough and objective procedures, this research still faces inherent limitations.
The author aims to address the research topic and objectives by conducting a thorough investigation, ensuring that the goals established align with the pressing needs of stakeholders in the banking stock market.
The study faces challenges in data collection and limitations, resulting in a relatively narrow research scope that includes only 18 banks rather than the entire market The reliance on daily data yields a limited number of observations, which may lack sufficient variation, potentially leading to undesirable outcomes in the research model.
The research method and model may suffer from inaccuracies in construction due to the author's limited analytical skills Additionally, the model fails to account for the complexities of the stock market, as it overlooks various significant factors beyond GDP and inflation, including both micro and macroeconomic influences.