Update HDB – Outperform

We recommend an OUTPERFORM rating for HDB with a 12-month target price of VND34,300/share, based on a target P/E of 7.6x, equivalent to its historical median. The potential private placement to foreign strategic investors is expected to serve as a positive catalyst for the stock, despite asset quality deterioration and EPS dilution.
Q3/25 results slowed, with PBT reaching VND 4.74 trillion (+5.4% y/y and +0.5% q/q). Total income and pre-provision profit still posted solid growth (+11.5% and +25.9% y/y, respectively), but provision expenses surged 109.8% y/y, limiting overall profit growth.
Credit surprisingly contracted VND20.000 bn in 3Q25 (-3.5% q/q, +21.3% y/y and +11.3% YTD), due to declines in corporate loans in real estate, construction, manufacturing and trade sectors, and a loan sale of VND10.000 bn to Vikki Bank. The contraction stemmed from rising NPLs, prompting HDB to tighten credit expansion to manage risk. NIM fell sharply (-122 bps y/y and -151 bps q/q) to 4.48%, driven by lower lending yields and the absence of one-off income seen in the previous quarter. Consequently, NII was flat y/y and down 20.9% q/q.

NFI grew strongly (+130.2% y/y and -3.5% q/q), supported by payment, FX, and other service segments, contributing to an 11.5% y/y increase in TOI.
Asset quality deteriorated. NPL ratio rose 36 bps q/q to 2.9%, while special mentioned loans jumped 66 bps q/q to 4.6%. HDB’s overdue loan ratio increased sharply, diverging from the industry’s improving trend, resulting in provision expenses up 109.8% y/y in Q3/25. NPL coverage ratio dropped significantly to 43%, from 60–70% in previous years.
Given slower income growth and higher provisioning costs, HDB reduced operating expenses (-15.7% y/y and -10.6% q/q), pushing CIR to 26% – among the lowest in the sector.
For 2025, we forecast PBT to reach VND 20.78 trillion, up 24.2% y/y (vs. AGM target: +26.6%). In 2026, PBT is expected to grow 24.5% y/y, driven by (1) credit growth of 25.6% y/y, (2) a 10 bps decline in NIM to 4.69%, and (3) a 25% y/y increase in provisioning expenses.

Tier-1 Capital Increase Plan
In October, bondholders converted USD 160 million of convertible bonds into 349.3 million HDB shares. The estimated dilution to EPS and BVPS is 7,4% and 8,1%, respectively.
By Q3/26, another batch of USD 165 million convertible bonds will reach conversion maturity. If all remaining convertible bonds are converted, EPS and BVPS are expected to be further diluted by 7,7% and 7,5%, respectively.
HDB currently relies on Tier-2 capital, with its CAR exceeding 13%, but Tier-1 capital ratio standing at only 8.5%. The bond conversions will strengthen Tier-1 capital while reducing Tier-2 capital, resulting in a more balanced capital structure and giving HDB greater capacity to raise additional Tier-2 capital in the future (which is capped at 100% of Tier-1 capital) to reinforce its CAR if needed.In addition, HDB plans a private placement to foreign strategic investors. The foreign ownership ratio currently stands at 16.9% (excluding the potential 8.3% increase from the convertible bond conversion). Therefore, HDB may need to lift the foreign ownership limit above 30% to proceed with the issuance. With the mandatory acquisition of Vikki Bank, under Decree 69/2025, HDB will be allowed to raise its foreign ownership limit up to 49% (vs. the general cap of 30% for banks).
Issuance to foreign strategic investors is typically done at a premium to market price, which should have a positive impact on HDB’s share price.
Overall, despite facing asset quality headwinds and EPS dilution from convertible bond conversions, we use a target P/E of 7.6x – equivalent to the historical median – supported by the upcoming private placement to foreign strategic investors.