ACB released H1 2021 results with TOI of VND11.9tn (USD518mn; +40.4% YoY) and bottom-line net profit of VND5.1tn (USD221mn; +65.8% YoY), achieving 50.3% and 48.2% of our FY2021 forecasts, respectively. The strong increase in NPAT was mainly due to (1) a 47.4% YoY increase in NII, (2) 89.6% YoY surge in pure NFI, (3) 44.6% YoY increase in FX trading gains, (4) 139.8% YoY rise in income from trading securities, and (5) a YoY decline in OPEX resulting in a very low CIR, which were partly offset by a 274.3% YoY increase in provision expenses. 

ACB reported robust NII growth in H1 2021 thanks to further NIM expansion in Q2 2021. NIM rose by 87 bps YoY in H1 2021 to 4.34%, which was due to (1) a 146-bp YoY decline in COF that outweighed a 56-bp YoY decrease in IEA yield and (2) an increasing loan-to-deposit ratio (LDR). During the first six months of 2021, ACB achieved loan growth of 9.7% (+20.4% YoY) amid much lower customer deposit growth of 1.5% (+8.4% YoY) for the same period, resulting in an LDR of 83.0%. However, management estimated that NIM in H2 2021 might be down by 50 bps vs H1 2021 due to the bank’s ongoing lending rate cut program. The maximum rate cuts are 80 bps and 100 bps on short-term loans and longer-term loans, respectively, applied only to secured lending and customers in Group 1. ACB is applying the broadest rate cut program we have seen so far because its objective is to use this program to attract new customers along with supporting customers who are impacted by COVID-19.

Strong bancassurance segment growth drove pure net fee income. Net fee income in H1 2021 was VND1.5tn (USD66mn, 89.6% YoY) in which VND853bn originated from the bancassurance segment — including booked upfront fees according the bank’s disclosure. Management shared that the outlook for fee income remains positive despite the impact of COVID-19; as such, pure NFI in the second half of 2021 may reach around VND1.3tn.

CIR dropped by 18.8 ppts due to higher TOI YoY and lower OPEX YoY. In H1 2021, TOI was up 40.4% YoY, whereas OPEX was down 13.8% YoY, which caused CIR to tumble to 29.9%. The decreasing OPEX was driven by (1) well-managed salary expenses (-10.8% YoY salary expenses per head) and an abnormal 265.8% YoY surge in reversal of provisions for other assets. Management shared that it set a target CIR of around 36% for H2 2021. 

Credit quality metrics improved across the board on a QoQ comparison with Q2 2021 NPL ratio dropping to 0.69% (-23 bps compared to Q1 2021) while remaining roughly static on a YoY comparison. The improving NPL ratio was on the back of Group 4 and Group 5 loans dropping 33.8% and 33.2%, respectively, after significantly climbing in Q1 2021. In H1 2021, provision expenses surged to VND2.0tn — more than double the figure for full-year 2020 (we note that ACB did the least specific provisioning relative to gross loan balance of any bank we cover in FY2020). This increase is explained by the fact that ACB decided to make a full provision of VND1.4tn for its entire provisioning obligation from its restructured loan balance instead of allocating it over three years following Circular 03, which is quite in line with the bank’s conservative manner. In addition, the amount of restructured loans was VND8.2tn as of June 2021 (down from VND8.5tn in Q1 2021).