The Roaring Tide of Insurance Stocks: What’s the Driving Force?

The VN-Index edged up 0.67%, or over 8 points, on November 29, 2024, with more gainers than losers. Notably, insurance stocks witnessed a sharp surge and emerged as the best-performing sector, rallying 5.11%.

With the exception of PGI, which closed unchanged, all other insurance stocks painted the town green, including PVI (+2.7%), PTI (+4.29%), and BIC (+5.29%). The rally was further accentuated by the strong performance of BVH (+6.98%) and MIG (+6.78%), which added a purple hue to the sector’s bullish picture.

Today’s performance in the insurance sector mirrored a similar rally witnessed in late August 2024, when the State Bank of Vietnam (SBV) decided to relax credit growth limits for credit institutions.

Right from the start of 2024, the SBV had allocated a 15% credit growth target for credit institutions, as outlined in Directive No. 01/CT-NHNN dated January 15, 2024. On August 28, 2024, the SBV proactively issued a document announcing adjustments to the 2024 credit growth target for these institutions. As of November 22, 2024, system-wide credit growth stood at 11.12% compared to the end of 2023.

The SBV stated that given the inflation was well-controlled below the target set by the National Assembly and the Government, and following the Government and Prime Minister’s directives on flexible and effective credit growth management, the SBV, on November 28, 2024, once again announced an increase in the 2024 credit growth target for credit institutions, ensuring transparency and fairness. This additional limit is a proactive move by the SBV, and credit institutions need not request it.

In theory, when credit growth is accelerated, lending rates tend to remain stable or increase slightly to maintain profit margins. This could exert pressure on deposit rates, potentially leading to adjustments to attract more deposits and balance capital sources, ensuring liquidity for banks during the peak business season.

Given the unique nature of the insurance industry, with short-term insurance policies, the investment portfolios of non-life insurance companies are predominantly focused on deposits and bonds, accounting for over 80%; the remaining comprises stocks and real estate.

Consequently, apart from their core insurance business, the financial performance of these companies can be significantly influenced by their financial investments, particularly as they hold substantial amounts of deposits. Thus, the insurance sector is considered sensitive to commercial bank deposit rate decisions.

This sensitivity likely explains why the news of the central bank’s decision to relax credit limits for banks triggered a wave of bullish sentiment for insurance stocks in today’s trading session.

Khang Di

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