Although being the first bank in the system to publish business results, Vietnam Prosperity Joint-Stock Commercial Bank (VPBank stock code: VPB) was much more optimistic than investors’ expectation. Specifically, accumulated total income for the first six months of the year was recorded at 18.854 trillion dong, up by 12 percent over the same period.
VPBank’s credit growth was 9.8 percent compared with less than three percent growth of the whole banking system as the COVID-19 pandemic continued to have a negative impact, according to the Vietnam Banks Association (VNBA). Experts evaluated that VPBank’s positive business results were contributed significantly by “the three pillars” including interest income, non-interest income and effective cost management.
As soon as the pandemic broke out in February 2020, VPBank launched new business scenarios to diversify business revenue streams. As a result, net fee income (NFI) has grown by nearly 42 percent compared to the first half of 2019, reaching more than 1.4 trillion dong. NFI’s contribution to VPBank’s total revenue has grown from 13 percent in the first six months of last year to 15 percent in the same period this year, helping to reduce the bank’s dependence on interest income.
In the official dispatch No. 1138/2020/CV-VPB to the State Security Commission of Vietnam, VPBank explained one of the reasons for the fluctuations in business profit was “interest income increased by 76.827 billion dong, of which the increase mainly came from interest income from investment securities of 53.619 billion dong and interest income of 25.826 billion dong due to the aggressive expansion of lending activities. Specifically, outstanding loans to customers as of June 30, 2020 reached 27.013 trillion, equivalent to an increase of 9.09 percent compared to outstanding loans on June 30, 2019″.
In the lending process, this bank is implementing a series of programmes to stimulate customers’ financial needs. According to research, VPBank operates loan programmes including unsecured personal loans, unsecured personal loans with preferential rate for teachers, re-borrowing of paid loans, and overdraft… Accordingly, thanks to flexible policies and prompt response to the people’s lack of liquidity during the pandemic, the bank accelerated the credit expansion while still applied the traditional lending process.
“VPBank recorded 15.722 trillion in interest income in the first quarter of 2020 due to 13.6 percent growth over the same period in total interest-earning assets. Customer’s loans rose by 9.1 percent and corporate bonds increased by 2.2 times over the same period. At the end of the second quarter, the bank’s credit grew by 6.8 percent compared to the end of 2019, while the bank’s credit growth limit for 2020 was 13%. However, VPBank has been approved by the State Bank of Vietnam (SBV) to extend the credit limit for this year”, VNDirect’s in-depth analysis report commented.
“If there was no COVID-19 crisis, VPBank could have targeted 13.5-14 trillion in profit”, said Nguyen Duc Vinh, general director of VPBank. When a pandemic has become complicated, the bank must develop different scenarios, but the top priority is to preserve capital, system and ensure that VPBank is least affected.
Based on the current strategies, combined with the SBV’s loosening of credit limits, it is likely that VPBank will continue to bring many surprises to its business results in the last six months of the year. According to VNDirect’s forecasts, VPBank’s after-tax profit is expected to reach 8.269 trillion, a slight increase compared to 8.26 trillion in 2019. Facing complicated epidemics, maintaining a good profit margin over last year, VPBank was highly appreciated by investors compared to a number of other competitors.
In terms of non-interest income, VPBank recorded an increase of 31.6 percent compared to the same period in the first half of the year, mainly thanks to an increase of 2.6 times in profit from securities as VPBank sold 80 percent of its balance of trading securities and 37 percent of investment securities of credit institutions. In terms of spending, VPBank has successfully reduced operating costs, down to 31 percent compared to 36 percent of the same period. This reduction is mainly due to the bank’s accelerated digitisation process.
Given a neutral valuation, VNDirect believes that VPB’s appropriate target price is 25,000 dong per share, based on the residual method of valuation applied by VNDirect. Downside risk could come from higher credit costs, as well as the potential for outperforming prices that could come from better credit growth than expected.
