Vietnam banking sector – 2021 update

Published On - August 26, 2021

TIM COMPANY RESEARCH

H1/2021 review:

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.

H2/2021 outlook:

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.

Company ratings and target prices are accessible for clients only.

If you are interested in getting full access to our paid Primary Research Materials feel free to get in touch with us at your convenience.

Our team is actively covering 50 companies in the listed Vietnamese equity space for our clients.