VCB update – BUY

Reduced provisioning pressure will be the key driver for strong profit growth of VCB in 2022

For 2022, we expect VCB to maintain NIM at the same level as 2021 thanks to:

(1) A sharp increase in interbank interest rates from 0% to 2-3% will benefit net interbank lenders such as VCB. At the end of 2021, VCB’s net interbank loans were VND116,000 billion.

(2) The scale of loan interest support packages in 2022 will not be as large as in 2H2021 because the economy has been recovering since the 4th wave of the epidemic.

(3) System liquidity is no longer abundant in 2022, which will put pressure on deposit rates to increase. However, CASA continues to grow thanks to the digital payment trend, which will help VCB control its cost of funds. We expect VCB’s CASA to improve from 35.7% to 37.3% by the end of 2022.

We expect the provisioning pressure in 2022 to decrease and this will drive VCB’s profit growth. At the end of 2021, VCB has made a full provision for the COVID-19 restructured loans, exceeding the minimum level of 30% as stipulated in Circulars 03/2021 and Circular 14/2021. In addition, the economic recovery since Q4/21 will help improve the solvency of customers and reduce the pressure of newly arising bad debt for VCB. 

We expect VCB’s profit before tax in 2022 to grow by 34.1% to VND36,725 billion.

We reiterate our BUY recommendation with 1-year target price of VND96,500/share using the discounted residual income method. Our target price equates to a forward P/E and P/B of 2022 of 17.5x and 3.5x respectively.