VCB – Softer 2Q after stellar 1Q – Earnings Update

• 2Q21 net profit softened 14.2% yoy due to heavy provisioning and increasing cost-to-income ratio (CIR).
• Overall, 1H21 NP grew by 23.5% yoy to VND10,858bn on impressive credit growth and higher NIM, forming 49% of our full-year forecast.

2Q21 topline softened by 14.2% yoy on heavy provisioning

• 2Q21 net interest income (NII) grew by 37.3% yoy on 19.6% yoy loan growth and 3.3% NIM expansion. Non-interest income fell 32% yoy due to lower fee and commission income as the bank has applied zero fee for online transaction since February 2021. As a result, total operating income (TOI) increased by 20.1% yoy to VND12,895bn.
• Notably, 2Q21 CIR increased to 36.7% from 29.1% in 2Q20 due to higher administrative expenses.
• We observed that the bank aggressively booked VND3,225bn (73.7% yoy) in 2Q21 provision, which is 41.8% higher than that of 1Q21.

1H21 recap: moderate earnings growth, ample loan loss coverage

• 1H21 NII grew by 23.7% yoy to VND21,169bn thanks to a 19.6% yoy rise in loan balance. Credit growth recorded 9.8% ytd, higher than that of 4.9% ytd in 1H20. The State Bank of Vietnam recently lifted VCB’s credit growth from 10% to 14% for FY21F, higher than our forecast.
• 1H21 assets yield softened by 52bps yoy to 5.43% due to rate cuts to aid customers affected by the Covid-19 pandemic. Meanwhile, cost of funds (CoF) fell by 93bp thanks to deposit rates cut from 1.0-1.3% yoy across all maturity spectrums. CASA ratio also climbed to 30.1% at end-2Q21 (unchanged at end-1Q21) from 26.2% at end-2Q20, being among the top 3 banks having highest CASA. As a result, 1H21 NIM increased by 37bps to 3.3% from 2.9% in 1H20.
• 1H21 cost-to-income ratio (CIR) was 33.3%, slightly lower than that of 34.9% in 1H20.
• 1H21 provision expenses increased by 37.2% yoy to VND5,500bn, leading to a spike in loan loss reserves (LLR) to 352% at end-2Q21 from 279% at end-1Q21, the highest among its peers. 2Q21 non-performing loan ratio (NPL) subdued to 0.7% from 0.9% at end-1Q21.

Maintaining earnings growth forecast of 21.5% for FY21F

• We expect FY21F NII to increase by 10.8% yoy on 14% yoy loan book rise and keep the same 2.91% yoy NIM hike. We forecast net fee income to grow by 49% yoy thanks to settlement income and strong insurance commission fee. Together with a CIR of 36% and a credit cost of 1.1%, FY21F net profit is expected to grow by 21.5% yoy to VND22,410bn.

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