VIB released H1 2021 results with TOI of VND7.31tn (USD317mn; +51.8% YoY) and bottom-line net profit of VND3.2tn (USD137mn; +67.8% YoY), achieving 49% and 51% of our FY2021 forecasts, respectively. The impressive increase in NPAT was mainly due to (1) a 55.0% YoY increase in NII and (2) 41.1% YoY increase in NOII that outweighed (3) a 32.9% YoY increase in OPEX and (4) 53.8% YoY increase in provision expense. We do not foresee material changes to our earnings forecasts, pending a more extensive review.

NII growth remained strong in H1 2021 thanks to further NIM expansion in Q2 2021. VIB reported H1 2021 NIM of 4.53% (+61 bps YoY), which was mainly due to a 137-bp YoY decline in COF that outweighed a 63-bp YoY decrease in IEA yield. 6M 2021 credit growth was 8.2% and derived from (1) 7.9% 6M 2021 loan growth as well as (2) a 31.8% 6M increase in corporate bond balances from a low base. H1 2021 CIR was 37.0% (-5.3 ppts YoY), which is 1.1 ppts lower than our 2021F forecast of 38.1% thanks to the expansion in NII.

NOII delivered 41.1% YoY growth mainly thanks to a 200% YoY surge in net other income and strong growth of pure NFI. The surge in H1 2021 pure NFI was mainly driven by (1) a 16.9% YoY increase in income from trading and insurance service to VND627bn (35% contribution to pure fee income) and (2) 50.9% YoY increase in income from settlement service to VND605.9bn (34% contribution to fee income). Net other income also soared 200% YoY due to (1) a 78% YoY increase in recovery from bad debts and (2) 29% YoY decrease in other expenses.

NPL ratio declined to 1.69% (-70 bps YoY) in Q2 2021, but VIB was one of two banks to report an increase in Group 2. Q2 2021 LLR increased to 96.5% (+2 ppts QoQ and +24 ppts YoY). In addition, the accrued interest level over interest-earning assets declined 9 bps YoY. However, the Group 2 (special mention) loan level rose 14 bps YoY, implying a potential burden on the NPL ratio in the near future. H1 2021 provision expenses increased 53.8% YoY to VND648bn (completing 43% of our full-year forecast), which we attribute to additional provision expenses for restructured loans. We believe VIB’s provision expense level will rise in 2021 — especially related to auto lending and given its low loan loss reserve ratio (LLR). VIB’s LLR as of end-Q2 2021 was 50.2%, which was among the low-end in our coverage universe.