VIB Update – OUTPERFORM

VIETNAM INTERNATIONAL COMMERCIAL JS BANK (VIB)

We downgraded from BUY to OUTPERFORM on VIB, following a 16,1% appreciation in the stock price since our last report. Our 1-year target price of VND19,000/share is based on target P/E and P/B of 6.5x and 1.2x, respectively. Downward pressure on NIM poses challenges for VIB’s business performance to achieve a significant breakthrough in the upcoming quarters.

2Q24 business results declined with PBT reaching VND2,103 billion (-15.9% q/q and -28.7% y/y), mainly due to a sharp contraction in NIM (-0.22 pts q/q and -1.19 pts y/y), dropping to 4.00%. VIB’s NIM is unlikely to improve in the near term, as lending rates face downward pressure to stimulate credit growth. Furthermore, the sluggish recovery in retail lending has compelled VIB to shift its focus toward large corporate loans, which typically offer lower yields. We forecast VIB’s full-year 2024 NIM to reach 4.08%, down 0.89 pts y/y.

Outstanding loans saw a moderate growth of 4.2% y/y and 18.6% y/y, primarily driven by the robust growth in corporate loans (+20.1% y/y, +54.7% y/y), offsetting weak recovery in retail loans (+1.2% y/y and +12.9% y/y) despite recent signs of improvement. We forecast VIB’s full-year 2024 credit growth to reach 13.9%.

Asset quality improved in 2Q24, although it remains poor. NPL ratio remained stayed elevated at 3.66%, but Category 2 loan ratio plummeted by 1.19 pts q/q, suggesting a reduction in the risk of further NPL formation in upcoming quarters. Restructured loans continued on a downward trend, now accounting for just 0.21% of the total outstanding loans. Meanwhile, interest collection days decreased for three consecutive quarters to a healthy level of 31, signaling that the risk of new NPLs has substantially diminished. 

VIB significantly ramped up its provisioning efforts, setting aside VND1,130 billion in Q2/24, representing a 31.4% y/y increase. However, despite these efforts, NPL coverage ratio was still among industry low of 48.1%. Hence, we expect VIB will need to maintain elevated provisioning levels, forecasting more than VND1,000 billion/quarter in 2H2024. This is, however, still lower than the hefty provisioning figures of VND1,600-1,700 billion/quarter in 2H2023. For the full year of 2024, we forecast provisioning expenses to reach VND4,284 billion, -11.6% y/y.

We forecast full-year 2024’s PBT to reach VND10,747 billion, reflecting a modest growth of 0.4% y/y and achieving 89% of the profit plan set by the AGM.