VCB_3Q20 PATMI (-13% QoQ/-21% YoY)

HOLD-Underperform

TP upside (downside) -13%
Close 21 Oct 2020
Price                       VND 86,200
12M Target           VND 75,140

Event

VCB reported 3Q20 PATMI of VND4.0 tn (-13% QoQ/-21% YoY) driven by higher operating expenses and higher provisioning in 3Q20. In 9M20, VCB’s PATMI was VND12.8 tn (-10% YoY), fulfilling just 68% of our forecast for 2020E.

Details

Loans increased by 7% YTD, completing 65% of our 2020E forecast.

3Q20 net interest income was VND8.7 tn (+8% QoQ/-2% YoY).

NIM on total average assets was 2.94% in 3Q20 (+17bps QoQ but -17bps YoY), which we attribute to slightly lower funding costs due to VCB’s improved CASA ratio and SBV easing.

3Q20 net fee income was VND1.3 tn (+9% QoQ but -2% YoY). Other income (which we believe was mostly loan loss recoveries) was VND540 bn (+89% QoQ but -39% YoY).

Operating expenses was VND4.6 tn (+47% QoQ/+9% YoY).

Provisioning increased by +9% QoQ/ +35% YoY to reach VND2.0 tn in 3Q20. As a result, provisioning in 9M20 surged by +25% YoY to reach VND6.0 tn. The reported NPL ratio was 1.01% (+17bps QoQ but -7bps YoY) on aggregate NPLs of VND7.9 tn (+23% QoQ/+3% YoY). Category 3 NPLs soared by +169% QoQ/+136% YoY, and Category 4 NPLs rose by +74% QoQ/+5% YoY.

VCB’s LLR ratio was 215% (-39ppt QoQ/ but +30ppt YoY) in 3Q20, by far the highest reserve coverage figure in the sector.

CASA deposits rebounded. CASA deposits were VND299 tn (+6% QoQ/+11% YoY). VCB’s CASA ratio was 30.5% in 3Q20 (+2ppt QoQ).

Our view

We continue to view VCB as the highest quality bank in Vietnam. VCB’s leading loan loss coverage reflects a prudent approach to credit risk that is not matched by all of its peers. Credit costs were among the main negative factors for YTD earnings, but the resulting high coverage ratio gives VCB greater flexibility than most other banks have to lower provisioning in upcoming periods, and thus to boost forward earnings without sacrificing asset quality.   

Sector-low funding costs are driven by VCB’s relatively high CASA ratio of 30.5%. This is a key competitive advantage over peers that should continue to support its NIM amid the low interest rate environment.

Maintain HOLD-Underperform, a recommendation that is entirely based on VCB’s relatively high valuation. The bank trades at 3.3x 2020E P/B vs. the sector median of 1.3x.

For the complete report, please access here: VCB_3Q20_Express note

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