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CTG - Solid Growth Outlook as Provisioning Pressures Subside

We have updated our valuation for the shares of Vietnam Joint Stock Commercial Bank for Industry and Trade (HSX: CTG) with a 12-month target price of VND 46,200, equivalent to a projected 2025 P/B ratio of 1.4x.
• Easing Credit Cost Pressures in the Medium Term. Since 2018, CTG has been addressing legacy non-performing loans (NPLs) from prior cycles and those arising from the Covid-19 pandemic, amidst fluctuating interest rates. Measures include settling debts with the Vietnam Asset Management Company (VAMC), restructuring loans, offering interest rate reductions to high-potential clients, bolstering provisions, and liquidating collateral assets. From 2018 to 2024, CTG allocated an average of 50% of its pre-provision profit to NPL resolution (versus an industry average of 36%), resulting in an average credit cost of 1.6% (industry: 1.4%). By 2024, the NPL ratio had declined to 1.22% from 1.60% in 2018, with an NPL coverage ratio of 175%, second only to Vietcombank (VCB) in the banking system. We expect the average credit costs to decline to 1.1% over the 2025F–27F period, given the improved asset quality. Our estimates suggest that pre-tax profit in 2025 is sensitive to a ±5% change for every ±10 bps shift in credit costs.
• Strong Potential for Asset Growth and Profitability. As a state-owned bank with significant market share in both lending and deposit mobilization, CTG benefits from low-cost funding. Coupled with comprehensive financial solution packages and digital transformation initiatives, the bank has increased its current and savings account (CASA) ratio. Leveraging these advantages, we believe CTG is well-positioned to expand its market share in target segments, such as retail banking, and attract higher-quality clients compared to the industry average. We forecast a 14.6% compound annual growth rate (CAGR) for credit growth over 2025F–28F. Combined with cost control and digitalization efforts, this is expected to drive a pre-tax profit CAGR of 19%, with return on equity (ROE) projected to exceed 19% by 2027F, up from 18.6% in 2024.
• Valuation. At a 2025F P/B of 1.2x, CTG’s relative valuation is notably lower than Vietcombank (2.1x) and BIDV (1.5x), despite comparable ROE, mid-tier asset quality, and the most optimised operating costs among peers. This discount partly reflects concerns over constrained credit growth due to a low capital adequacy ratio (CAR) of 9.6% in 2024, compounded by challenges in raising Tier 1 capital given the state’s 65% minimum ownership requirement. However, we expect CTG to bolster its capital base by retaining profits, optimising risk-weighted assets, and issuing Tier 2 bonds, thereby improving its CAR. These efforts, alongside ROE improvements, should support a re-rating of the bank’s valuation.
• Risks. (1) Macroeconomic Uncertainty: Global economic downturns, escalating trade wars, or sharp interest rate fluctuations could trigger a new NPL cycle, (2) Credit Growth Shortfalls: Tighter credit policies or cautious regulatory shifts may hinder credit expansion.