VCB - Weak NOII; reversal of provision expenses for interbank loans saves bottom line

VCB released its H1 2024 results with TOI of VND34.0tn (USD1.4 bn; -5.4% YoY) and PBT of VND20.8tn (USD829 mn; +1.6% YoY), achieving 44% and 46% of our respective FY2024 forecasts. These results imply Q2 2024 PBT of VND10.1tn (-5.6% QoQ, +9.0% YoY). The H1 2024 YoY increase in the bottom line was mainly driven by a 33.7% YoY drop in provision expenses, which was offset by a 22.1% decrease in NOII. Overall, we see a slightly potential downside to our earnings forecasts for VCB, pending a fuller review.

6M 2024 credit growth was 7.7% (loan growth of 7.8%; corporate bonds decreased 1.8% vs Q4 2023 and accounted for 0.7% of total credit) vs our full-year forecast of 12.0%.
6M 2024 customer deposits declined 1.5% vs our full-year forecast of 11.5%. In Q2 2024, VCB’s CASA ratio increased by 0.9 ppts QoQ and 5.6 ppts YoY to 35.6%, which we attribute to the deposit rates offered by the bank not increasing in H1 2024.
H1 2024 NIM decreased 27 bps YoY to 3.02% vs our full-year forecast of 3.12%, which we attribute to a 152 bps YoY decrease in the IEA yield that outweighed a 140 bps YoY drop in COF. Q2 2024 NIM contracted by 12 bps QoQ to 3.04%.
H1 2024 NOII was VND6.0tn (-22.1% YoY), completing 34% of our full-year forecast. The YoY decline was driven by all activities, including (1) a 4.5% fall in NFI, (2) a 26.0% decrease in FX trading gains (from a high base in H1 2023), (3) a 75.8% decrease in bond trading gains, and (4) a 60.3% decrease in net other income (mainly including recovery income of written-off bad debt).
H1 2024 CIR declined 0.5 ppts YoY to 29.9% vs our full-year forecast of 32.4%.
Asset quality deteriorated YoY but remained flat QoQ with the NPL ratio at 1.20% in Q2 2024 vs our full-year forecast of 0.9%. New NPL formation in Q2 22024 was VND2,468 bn (including a write off of VND1,481bn), accounting for 0.18% of VCB’s loan book. VCB’s Group 2 loan ratio decreased by 15 bps QoQ, reaching 0.41%.
Annualized H1 2024 credit cost was 0.44% (vs 0.59% in 2023). VCB’s H1 2024 provision expenses were VND3.0tn (-22.1% YoY), achieving 43% of our full-year forecast. VCB’s LLR was 212% in Q2 2024 vs 230% and 203% in 2023 and Q1 2024, respectively, and remained the highest in our coverage. Our estimation suggests that VCB reversed VND3.9tn of provision expenses for interbank loans in Q2 2024. In H1 2024, the bank reversed VND4.7 of provision expenses for interbank loans.

VCB’s consolidated H1 2024 results

VND bn	H1 2023	H1 2024	YoY	Q2 2023	Q2 2024	YoY
NII	28,224	27,986	-0.8%	14,021	13,908	-0.8%
Non-interest income	7,764	6,046	-22.1%	3,450	2,844	-17.6%
OPEX	(10,930)	(10,176)	-6.9%	(5,656)	(5,122)	-9.4%
PPOP	25,057	23,856	-4.8%	11,814	11,630	-1.6%
Provision expenses	(4,558)	(3,022)	-33.7%	(2,536)	(1,514)	-40.3%
NPAT-MI	16,409	16,699	1.8%	7,428	8,125	9.4%

Loan growth**	2.9%	7.8%	5.0 ppts	0.3%	8.1%	7.8 ppts
Deposit growth**	6.7%	-1.5%	-8.2 ppts	3.5%	2.0%	-1.5 ppts

NIM	3.28%	3.02%	-27 bps	3.19%	3.04%	-15 bps
Interest-earning asset yield	6.57%	5.05%	-152 bps	6.56%	5.00%	-156 bps
Cost of funds	3.68%	2.28%	-136 bps	3.78%	2.21%	-157 bps
CASA ratio*	30.0%	35.6%	5.6 ppts	30.0%	35.6%	5.6 ppts
CASA ratio plus term deposits in FX	35.8%	41.5%	5.7 ppts	35.8%	41.5%	5.7 ppts
CIR	30.4%	29.9%	-0.5 ppts	32.4%	30.6%	-1.8 ppts

NPLs / Gross loans	0.83%	1.20%	37 bps	0.83%	1.20%	37 bps
Group 2 loans / Gross loans	0.69%	0.41%	-28 bps	0.69%	0.41%	-28 bps
Accrued interest / IEAs	0.53%	0.45%	-8 bps	0.53%	0.45%	-8 bps

Source: VCB, Vietcap — *CASA volume included demand deposits and margin deposits; ** Q2 2023 and Q2 2024 loan and deposit growth is QoQ growth; H1 2023 and H1 2024 loan and deposit growth is 6M growth.