What boost for HDB?

HDB has announced that HD Securities Joint Stock firm (HDS) will become an affiliate firm. This promises exciting competition in financial product trends, alongside the core credit segment.

Industry Context

The State Bank of Vietnam (SBV) has just extended Circular 02/2023/TT-NHNN till the end of the year. This will help banks in a time of weak loan growth, decreasing asset quality in the industry, and more favorable circumstances for clients seeking credit.

According to MBS, the average bad debt ratio of listed banks (NHNY) was 2.17% at the end of Q1 2024, up marginally from 1.93% at the end of 2023 and 7 basis points lower than the high in Q3 2023. Group 2 debt ratio also rose significantly, to 2.10% from 1.94% at the end of 2023. In the first quarter of 2024, listed banks' bad debts surged by 48.5% year on year, but provisioning expenses climbed only marginally by 5.4%, drastically lowering the loan loss reserve (LLR) ratio. The average LLR was just 87.5% at the end of Q1 2024, a considerable decrease from 94.6% at the end of 2023 and 120.7% at the end of Q1 2023.

However, the asset quality of the banking sector is expected to improve as the net interest margin (NIM) recovers and credit grows.

Strong Internal Factors

In the general context, according to MBS, HDB is among the banks with minimal asset quality decline (along with TCB, VCB, and VPB…). In 2023, HDB recorded low bad debt ratios (individual bad debt ratio of 1.5% and consolidated 1.79%), with record profits in 10 years and top-tier credit growth.

Continuing this momentum, at the end of Q1 2024, HDB maintained a higher credit growth rate than the industry average (6.2% compared to 0.26%). This achievement stems from a high-quality customer base, promoting chain loans, green credit, renewable energy, rural agriculture, and quality consumer growth at HDSaison. Consequently, pre-tax profit (LNTT) reached VND 4 trillion, up 46.8% year-on-year.

Mr. Pham Quoc Thanh, General Director of HDB, affirmed that HDB’s Q1 2024 results demonstrate its continued leading efficiency position in the industry, with ROE reaching 26.2%. Credit growth in Q1 2024 was 6.2%; bad debt ratio was controlled at 1.68%.

Notably, restructured debt under Circular 02/2023/TT-NHNN at HDB at the end of Q1 2024 had a total value of VND 3.6 trillion, accounting for 1% of total outstanding loans, fully provisioned in this quarter. HDBank continued to maintain stability in real estate and construction loans, demonstrating the bank's effective risk management capabilities.

Growth Prospects

According to the AGM plan, HDB targets a pre-tax profit (LNTT) of VND 15,852 billion, close to SSI Research’s forecast of VND 16,000 billion. This includes the recovery of consumer lending growth and contributions from HDSaison.

HDB’s Board of Management stated that consumer loans increased by 3.7% month-on-month and 8% year-to-date to VND 17.4 trillion in April 2024. HDB expects consumer demand to recover more strongly in the second half of 2024.

According to Affinity Equity Partners, with a profit growth rate of over 25%, HDB is clearly the best-performing bank. The fund's leadership emphasized HDB's ability to maintain high profitability due to its focus on the SME segment and retail customers - groups that have not fully accessed banking financial products in tier 1, 2, and 3 areas. Additionally, there are advantages in multi-service development, large customer partner supply chains, and effective technology investment.

HDB recently announced HDS becoming an affiliated company. This promises exciting competition in asset management development trends, comprehensively serving customers' banking financial product needs, similar to other financial institutions like BID and VPB.

SSI Research forecasts HDB’s profit before tax in 2024 to increase by 23% year-on-year, with NIM reaching 5.03%, bad debt ratio expected to rise to 1.96%, while net fee income is expected to increase by 17.9% to VND 2,600 billion; profit from forex trading and securities investment may decrease by 68.3% to VND 562 billion due to HDB likely continuing to sell VJC shares. Accordingly, SSI maintains a positive recommendation for HDB, with a 1-year target price of VND 29,000 per share.

Similarly, MBS believes HDB aims for comprehensive ecosystem development; better asset quality compared to other high-risk appetite banks; credit growth limit  that could reach 23% this year due to (i) the bank acquiring a 0-dong bank; (ii) the bank having a low LDR ratio, thereby, average net profit growth of 23.1% per year in the 2024-2025 period. Combining methods, HDB is valued at VND 29,400 per share, indicating significant upside potential.