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Company Quarterly Earnings Update – VPB VN – Q1 2024
Summary of Q1/2024 results and outlook of VPBank (VPB VN)
- Net income surged by 40.6% y/y, propelled by higher income and reduced provision expenses. Total operating income (TOI) edged up only 8.5% y/y as the strong growth in net interest income (NII) was offset by a slowdown in net fee income (NFI). NII increased significantly by 18.8% y/y, driven by strong credit growth of 24.5% y/y, however encountered a setback due to a notable decline in Net Interest Margin (NIM) by 45bps, attributed to two main reasons: (1) dramatic drop-in lending rates as VPB aggressively lower lending rate to stimulate credit growth and support existing customer and (2) shift in the lending portfolio towards corporate customers. NFI trended down by 6.9% y/y, primarily driven by a 68.0% y/y decrease in bancassurance fees, mirroring the persistent weakness in the life insurance market.
- Recall that since Q4/2021, after Sumitomo (SMBC) acquired a 49.0% stake in Fe Credit (FEC) from VPB, they initiated a restructuring process upon reviewing the company’s financial position and operations, which appeared unsustainable. Signs of improvement began to emerge in Q1/2024, as FEC’s asset quality notably improved, leading to a reduction in the consolidated Non-Performing Loan (NPL) ratio from 6.2% to 4.8%. Moreover, FEC managed to reduce expenses by 20.5% y/y through operational transformation while beginning to re-expanding their business.
- We project 2024F profit to be bolstered by the turnaround of FEC. The loan book of FEC is expected to re-expand after a long period of decline due to restructuring. A flat YTD loan balance and TOI in Q1 indicate signs of stabilization, bolstered by strong Q1/2024 disbursements of 10% q/q. We anticipate a continued expansion of NIM for FEC, alongside a downward trend in NPL. With 70% of the new loan book already underwritten with tightened policies towards safer products, we anticipate that the restructuring period is nearing its conclusion, easing provision pressure and restoring profitability for FEC going forward.
- For the parent bank despite challenges in bad debt collection and a slower-than-anticipated recovery of TOI in Q1, we anticipate a robust acceleration of bad debt recovery towards the year-end as the economy gains momentum. NIM is unlikely to improve further due to the bank’s shift towards a more conservative lending portfolio and increasing funding cost pressure. Yet, provision costs have likely peaked and will have less impact on the bottom line going forward.
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