HDB_AGM Takeaways: A step closer to Basel II

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Current price (24/04/2019): VND 28,350

Target Price: N/A

Upside: N/A

Summary: We attended HDB’s AGM on April 23. The key focus of discussion was the bank’s plan to increase its charter capital. HDB’s all-stock dividend is intended to support business network expansion, IT improvements, and medium- to long-term funding. With total CAR reported at 12.1%, HDB believes that Basel II approval from the SBV is imminent in 2Q19.

Company profile: HDB primarily focuses on retail and SME banking. The bank is ranked No.8 by total loans (currently VND122 tn, or 1.6% market share) among non-state commercial banks. HDB has 285 branches and transaction offices and nearly 7 million clients as at 2018. Management expects Basel II implementation to be approved in 2Q19.

Capital retention to fund business expansion. HDB successfully obtained shareholders’ approval at the AGM to boost its charter capital by VND 2.9 trillion. The Bank will accomplish this through a 30% stock dividend, so total capital will remain unchanged.

The move is intended to support HDB’s network expansion from the current 285 branches/transaction offices to 308 in 2019E, upgrade IT system to adopt Basel II, and provide additional funding for medium-to long term loans. 4Q18 short-term funding to medium- and long-term loans was about 32%, which is already well below the SBV’s cap.

A step closer to Basel II. HDB’s CAR of 12.1% is relatively high vs most of its peers. HDB expects the SBV to approve its Basel II implementation in the current quarter (i.e., 2Q19) given its NPL ratio of just 1.5% (1.92% if VAMC bonds are included in the numerator) and B1 credit rating from Moody’s.

For a complete report, please access here: HDB_AGM Note_04.19

Analyst: Tanh Tran, tanh.tran@yuanta.com.vn