LPB - CIR drop in H1 2021 closes gap vs peers - Earnings Flash
  • 2021-07-21T00:00:00
  • Company Research

LPB released H1 2021 results with TOI of VND4.8tn (USD208mn; +48.6% YoY) and bottom-line net profit of VND1.6tn (USD38mn; +101% YoY), achieving 47.4% and 60.9% of our FY2021 forecasts, respectively. The impressive increase in NPAT was mainly due to (1) a 45.8% YoY increase in NII, (2) 86.4% YoY increase in pure NFI, (3) 2.2x YoY increase in FX trading gains (from a low base), (4) VND2bn gain from investment securities vs a loss of VND63bn in H1 2020, and (5) a 6.5% YoY increase in OPEX that significantly lagged TOI growth, which was partly offset by a 185% YoY increase in provision expenses. We see potential upside risk to our current forecasts for LPB, pending a more extensive review.

NII growth remained strong in H1 2021 thanks to further NIM expansion in Q2 2021. LPB reported H1 2021 NIM of 3.56% (+63 bps YoY), which was mainly due to (1) a 78-bp YoY decline in COF that outweighed a 10-bp YoY decrease in IEA yield and (2) a higher pace of 6M 2021 loan growth compared to deposit growth (8.27% and 6.67%, respectively). The strong fall in COF on a YoY basis was mainly driven by a series of deposit rates cuts by the State Bank of Vietnam (SBV) from November 2019 to October 2020. In our view, COF could have dropped further than this level had CASA not seen a YoY decline from 12.3% in H1 2020 to 10.7% in H1 2021. Meanwhile, we believe the shift toward retail customers helped to limit IEA yield slippage in H1 2021. On a QoQ basis — despite a 4-bp QoQ increase in COF — LPB reported an 11-bp QoQ increase in NIM owing to a 13-bp QoQ increase in IEA yield. 

NOII delivered 75.2% YoY growth mainly thanks to a 105.4% YoY surge in NFI (including FX trading). LPB reported H1 2021 NOII of VND544bn (+75.2% YoY), achieving 47.9% of our full-year forecast. The surge in H1 2021 NOII was mainly driven by (1) an 86.4% YoY increase in pure NFI to VND391bn (78% contribution to NOII), (2) 2.2x YoY increase in FX trading from VND36bn in H1 2020 to VND113bn (22% contribution to NOII), and (3) VND2bn gain from investment securities vs a loss of VND63bn in H1 2020, which were partly offset by a decrease in net other income from VND128bn in H1 2020 to VND38bn in H1 2021 that we believe was mainly due to lower recovery income from written-off bad debts.

H1 2021 CIR was lower than our expectation due to well-managed OPEX. H1 2021 OPEX grew 6.5% YoY amid a 48.6% YoY increase in TOI, which led to an 18-ppt YoY decrease in CIR to 44.4% as of H1 2021. A modest increase in OPEX was mainly driven by a 17.6% YoY increase in salary expenses and 12.3% YoY increase in asset expenses that were partly offset by a 16.2% YoY decrease in administrative expenses (including social activity expenses). We suspect that part of the social activity expenses in the past was fully depreciated by Q1 2021.

Asset quality improved in Q2 2021 — except for a slight deterioration in accrued interest. The Q2 2021 NPL ratio dropped to 1.34% (-10 bps QoQ and -31 bps YoY) on the back of a write-off over gross loans rate of 0.22% in H1 2021 (vs 0% in H1 2020). Q2 2021 LLR increased to 96.5% (+2 ppts QoQ and +24 ppts YoY). Group 2 loans relative to gross loans decreased 2 bps YoY to 0.81%. H1 2021 provision expenses increased 185% YoY to VND616bn (completing 55.0% of our full-year forecast), which we attribute to additional provision expenses for restructured loans. In contrast, we did see a slight deterioration in accrued interest over IEAs to 2.69% in Q2 2021 (+3 bps QoQ and +7 bps YoY).