Due to the successful containment of COVID-19 in H1/2021, the banking sector performed strongly. This is represented by a net profit growth of 51.3% y/y, thanks to:
- Net interest income increased 33.8% y/y backed by a high credit growth of 17.2% y/y and NIM expansion by 35bps y/y
- A 36.1% y/y growth in non-interest income
- Supportive governmental policies allowing for the current classification of loans to be retained for 1 year and provision expenses split over the 3 years from 2021
Asset quality also showed improvement in which the NPL ratio stayed flat at 1.3% and restructured loans dropped 50-60% YTD across banks under our coverage. At the same time, the loan loss provision ratio also rose from 124.4% in 2020 to 155.2% by June 2021. Overall, H1/2021 exceeded our expectations.
We believe H2/2021 results will be lower than expected due to the most recent outbreak of COVID-19. Specifically:
- Income growth: We expect slower growth in H2/2021 earnings compared to H1/2021 because: (1) banks lowered lending interest rates to support clients during the pandemic while deposit rates are likely to increase slightly; (2) reduction in fee income due to social distancing, especially the bancassurance service; (3) a slight increase in provision expenses. Nevertheless, 2021F net profit is still expected to grow by 26.5% y/y.
- Asset quality: Although the 4th wave of COVID-19 is the most serious one faced by Vietnam to date, there have been positive signals such as a reduction in restructured loans resulting from COVID-19 with some banks even already making provisions for those. Also, banks have been well prepared by increasing loan loss provision ratios and they are able to split provision expenses over 3 years as allowed by the SBV so the impact on asset quality is not significant.
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