HDB released H1 2021 consolidated results with TOI of VND8.42tn (USD365mn; +32.7% YoY) and bottom-line net profit of VND3.352tn (USD146mn; +44.4% YoY), achieving 49% and 54% of our FY2021 forecasts, respectively. The increase in consolidated NPAT was mainly due to (1) a 20.6% YoY increase in NII, (2) 168.7% YoY increase in NFI including FX trading gains, (3) 420.7% YoY increase in gains from investment securities and (5) 21% YoY increase in OPEX that significantly lagged TOI growth. Given weakness in NIM in the last two quarters, we see potential downside risk to our current forecasts for HDB, pending a more extensive review.  

- H1 2021 consolidated credit growth was 5.8%, which was derived from (1) 7.6% 6M 2021 loan growth that outweighed (2) a 26.1% 6M 2021 decrease in corporate bond balances. The parent bank’s 6M 2021 loan growth was 8.1%.
- HDS’s 6M loan growth was 1.1% (6.7% YoY and -3% QoQ), reaching VND14.4tn (USD624mn) with HDS’s loan book contributing 7.5% to the consolidated loan book in Q2 2021.
- H1 2021 annualized consolidated write-offs to gross loans was 0.84% vs our FY2021 forecast of 0.75% and was primarily HDS driven.

NIM weakness continues in Q2 2021 due to pressure on IEA yield. While funding cost continued to trend down in H1 2021 amid the low-rate environment, consolidated NIM declined 64 bps YoY due to (1) a 136-bp YoY drop in IEA yield, (2) a decrease in CASA volume that resulted in CASA ratio falling 1.8 ppts YoY or 0.5 ppts QoQ and (3) the slower pace of 6M 2021 loan growth compared to deposit growth (7.6% and 13.7%, respectively). The third point clearly goes against the trend of increasing LDR in H1 2021 of our coverage banks as a mechanism to blunt the impact of falling IEA yields.

133% YoY surge in NOII thanks to strong net fee income (NFI) and gains from investment securities in H1 2021. This was mainly driven by (1) a 185.7% YoY spike in H1 2021 of pure NFI and (2) 420.7% YoY increase in gains from investment securities amid favorable market factors. For the first six months of 2021, NFI growth — including FX income — was 168.7% YoY and achieved 77% our FY2021 forecast. We maintain our expectation that HDB still has headroom to grow its NFI from its high retail and SME exposure. As HDB’s management claimed at the bank’s recent AGM that the bancassurance segment will be one of the main segments to propel growth in 2021, we believe it will be the key driver for HDB’s NOII in near future.

H1 2021 CIR was lower than our expectation due strong NOII growth despite a surge in OPEX. CIR in H1 2021 dropped 3.8 ppts YoY to 39.4% vs our FY2021 forecast at 41.7%. However, OPEX increased 21.0% YoY in H1 2021 due to (1) a 26.9% increase in staff costs (59% contribution to OPEX) and (2) 12.5% YoY increase in administrative expenses (27% contribution to OPEX).

Credit quality remains at a manageable level and the parent bank’s NPL ratio in Q2 2021 was the lowest in the last three years. The NPL ratios of the parent bank and HDS were 0.84%  (-28bps YoY) and 5.84% (+27 bps YoY), respectively. Consolidated Group 2 (special mention) loan level and accrued interest to IEAs trended down. Q2 2021 consolidated LLR increased to 87.9% (+15.6 ppts YoY), in which LLR of the parent bank was 107% (-60 ppts YoY). H1 2021 consolidated provision expenses increased 30.6% YoY to VND914bn (completing 39.0% of our full-year forecast). As such, we expect additional provision expenses for restructured loans to be recorded in H2 2021. We await the company’s disclosure on its Circular 01 restructured loan level to complete our assessment on credit quality movement.