STB released consolidated results for H1 2021 with TOI of VND8.9tn (USD387mn; +19.4% YoY) and bottom-line net profit of VND1.9tn (USD83mn; +69.5% YoY), achieving 44.8% and 55.2% of our FY2021 forecasts, respectively. The increase in NPAT was mainly driven by (1) a 12.4% YoY increase in NII, (2) 25.0% YoY increase in pure NFI, (3) 194% YoY increase in net other income and (4) 6.6% YoY decrease in provision expenses, which were partly offset by (1) a 5.9% YoY decrease in FX trading and (2) 12.5% YoY increase in OPEX. On a quarterly basis, STB reported Q2 2021 NPAT of VND1.1tn, up 224% YoY from a low base in Q2 2020. The first half result of STB was slightly ahead of our forecast; however, given the impact of the fourth wave of COVID-19 in Vietnam — together with STB’s new lending rate cut program of 1 ppt for customers affected by COVID-19 in H2 2021 — we see limited or no upside to our earnings forecast for STB, pending a fuller review.

H1 2021 NII delivered solid growth of 12.4% YoY thanks to a modest increase in NIM along with an increase in regulated LDR. Although STB reported a 163-bp YoY drop in H1 2021 IEA yield that outweighed a 126-bp YoY drop in COF, H1 2021 NIM experienced a 2-bp YoY expansion to 2.90% as loans to customers grew at a faster pace than deposits from customers in 6M 2021 (6.1% and 1.4%, respectively). In our view, a significant drop in H1 2021 IEA yield was mainly driven by continuing accrued interest reversal at STB in addition to concessionary lending rates to support customers affected by COVID-19. Indeed, we observe that STB’s accrued interest balance dropped VND3.4tn in 6M 2021 vs a drop of VND927bn in 6M 2020 vs our 2021F assumption for accrued interest reversal of VND3.3tn. Meanwhile, we attribute a 126-bp YoY drop in H1 2021 COF to a series of deposit rate cuts by the State Bank of Vietnam (SBV) as well as a 3.5-ppt YoY increase in CASA ratio. Q2 2021 CASA ratio of 19.9% was the highest level seen in the last three years on a quarterly basis. According to our calculation, Q2 2021 regulated LDR reached 80.5% vs 71.4% in Q2 2020 and our 2021F assumption of 78.6%. 

Net other income was the key driver for NOII growth in H1 2021. STB reported H1 2021 NOII of VND2.7tn (+39.0% YoY) thanks to (1) a 25.0% YoY increase in pure NFI, (2) VND52bn of gains from investment securities vs a VND33bn loss in H1 2020 and especially (3) a 194% YoY increase in net other income that could have come from a higher recovery rate from written-off bad debts and/or the recognition of interest income from deferred receivables from the Can Duoc land bank sale (STB periodically books interest income — recognized in other income rather than NII — from the Can Duoc land bank sale; the last such confirmed booking was in Q4 2020). These items are partly offset by a 5.9% YoY decrease in gains from FX trading.

H1 2021 provision expenses dropped 6.6% YoY on the back of a sharp decline in the Q2 2021 NPL ratio. STB reported provision expenses of VND1.5tn (-6.6% YoY) in H1 2021 due to (1) a 60-bp YoY drop in the NPL ratio and (2) an 83.5% YoY decrease in provision for other assets from VND651bn in H1 2020 to VND108bn in H1 2021, which were partly offset by a 340% YoY increase in provision for VAMC to VND976bn, according to our estimation. We currently project that STB will book VND1.7tn of provision for VAMC and VND116bn of provision for other assets in 2021.

All components of non-performing assets continued to improve in Q2 2021. Accordingly, the receivables balance declined to VND19.9tn (-3.0% QoQ and -6.4% YoY) while accrued interest decreased to VND14.0tn (-13.2% QoQ and -24.5% YoY) in Q2 2021. The Q2 2021 NPL ratio dropped 60 bps YoY to 1.55% — though it slightly increased by 7 bps on a QoQ basis. STB settled VND1.4tn of VAMC and recorded no write-offs in Q2 2021. As of 6M 2021, STB settled VND1.6tn of VAMC and recorded a write-off rate over gross loans of 0.01%.