Vietcombank to maintain resilience despite possible bad debt formation and lower profit

17:02 | 09/12/2020

Vietcombank is expected to maintain its resilience despite possible significant bad debt formation and lower profit due to the pandemic. The bank has implemented strict provisions to control the non-performing loans ratio.

vietcombank to maintain resilience despite possible bad debt formation and lower profit
Viet Dragon Securities estimates Vietcombank to suffer insignificant impact from the pandemic

According to Viet Dragon Securities (VDSC), Vietcombank’s profit before tax could witness a 1.6 per cent decrease in growth in 2020 at $989.3 million due to the booking of some upfront fees. It should take several quarters to fully reflect the effect of the pandemic.

However, as one of the largest state-owned commercial banks in the country, Vietcombank is expected to maintain its resilience during and after the pandemic.

Vietcombank is estimated to achieve credit growth of 10 per cent, while deposit growth would slow down to 8 per cent because of slower lending and abundant liquidity. Net interest margin (NIM) is expected at 2.9 per cent, resulting in a net interest income (NII) growth of 0.4 per cent. Total operating income (TOI) grows 4.3 per cent on-year due to slower growth in non-interest income, while the cost-to-income ratio (CIR) is maintained. In the last quarter of 2020, Vietcombank could have significant bad debt formation but write-off activities and strict provision policies are estimated to keep its non-performing loans (NPL) stable (at around 1.0-1.2 per cent) and loan loss reserves (LLR) high (above 200 per cent).

For 2021, VDSC believes that the pandemic will be controlled, leading to a slower pace in credit costs, and higher credit growth ceiling (13-15 per cent) for Vietcombank due to capital raising. NIM will recover and services income is expected to have double-digit growth. Pre-tax profit is forecast at around $1.1 billion, up 15.9 per cent.

“We maintain a positive view for Vietcombank. Healthy lending, strong balance sheet, sustainable low funding cost, reputable brand, diversified customer base, sustainable market share in international settlements and foreign exchange are the bank’s robust rationales. We anticipate an insignificant loss of market share in individual loans, domestic settlement, and credit cards due to competition. In the longer term, we evaluate its significant valuation premium on average multiples justifiable, although it could be lower than historically due to lower sustainable ROE as a result of lower leverage,” noted VDSC.

In April, the pan-Asian insurer FWD Group confirmed securing regulatory approval to proceed with the previously announced acquisition of Vietcombank-Cardif Life Insurance (VCLI), a joint venture between leading state-owned Vietcombank and French partner BNP Paribas Cardif.

The tie-up, rumoured to be worth anywhere between $400 million and $1 billion, is slated to strengthen FWD’s presence in Vietnam as well as underline the company’s continued confidence in the long-term growth potential of Vietnam.

Lam Tien

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