According to VNDIRECT Analysis Division, although the profit of Lien Viet Post Joint Stock Commercial Bank (LienVietPostBank) increased impressively, asset quality showed signs of decline.
LienVietPostBank’s net interest income in the first six months of 2019 increased by 27.7 percent over the same period last year thanks to good credit growth (up 12.8 percent yoy) while customer deposits decreased by 11.1 percent due to increased capital costs. Non-interest income tripled over the same period thanks to a 151.1 percent increase in service fee income due to the promotion of card products, digital banking services, insurance products and increased service fees from June 2018. Meanwhile, operating expenses increased by 16.6 percent due to slow network expansion and provision expenses decreased by 3.2 percent. Therefore, the bank’s net profit increased by 76.7 percent to 898 billion dong, completing 81.7 percent of the 2019 forecast.
However, the specialists of VNDIRECT said that LienVietPostBank’s asset quality is showing signs of decline. In the first six months of 2019, bad debt ratio increased to 1.5 percent, while provision expense decreased by 3.2 percent. Low provision but rapid increase in bad debt made provision to bad debt ratio drop sharply from 112.0 percent at the end of the second quarter of 2018 to 77.9 percent as of the same period of 2019. The majority of provision for Vietnam Assets Management Company (VAMC) bonds, however, the reserve to VAMC bond balance ratio is only 65.6 percent. Therefore, LienVietPostBank could hardly complete the provision for VAMC bonds in 2019.
VNDIRECT forecasts that LienVietPostBank’s profit growth will slow down in the second half of 2019. At the same time, the target price of LPB shares reduced to 10,000 dong per share because the stock was diluted 12.8 percent after the recent issuance of buying rights from 1.0x to 0.7x. In addition, LienVietPostBank’s plan to move to Hochiminh Stock Exchange (HOSE) is prolonged with slow progress and the issuance of the right to buy in 2018 is not really successful.
LPB shares are currently 46 percent lower than the industry, but VNDIRECT believes that negative factors are reflected in price movements. As of August 15 trading session, LPB shares were traded below par value of 7,800 dong per share with very poor trading volume, about only a few hundred thousand shares.
