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VCB - Moderate but Solid Growth

1Q2025: PBT Remains Flat as Significant NIM Contraction Offsets Credit Growth and Non-Interest Income Gains
• PBT reached VND 10.9 trillion (+1% YoY), achieving 25% of the full-year plan. Key growth drivers included a 12% YoY increase in non-interest income, a 50% YoY reduction in provisioning expenses, and credit growth of 1.2% YTD (15.6% YoY). However, these factors were offset by a sharp 50 bps YoY decline in Net Interest Margin (NIM) to 2.65%. Asset quality remained industry-leading, despite a slight 7 bps QoQ increase in the non-performing loan (NPL) ratio to 1.03% and a 7 ppts QoQ decrease in the loan loss reserve (LLR) ratio to 216%.
2Q25 Projection – Profit Expected to Rise 10% YoY Driven by Non-Interest Income and Lower Credit Costs
• Net interest income is projected to remain flat. Credit growth (post-VCBNeo support) is estimated at 5% YTD, equivalent to 11% YoY, with NIM remaining stable at 2.65% (-40 bps YoY). Non-interest income is expected to grow by 34% YoY, primarily driven by foreign exchange trading and recoveries from off-balance-sheet bad debts. Credit costs are forecast at over VND 700 billion, down 53% YoY, largely due to general provisions, as the NPL portfolio remains stable at VND 15.1 trillion (NPL ratio below 1% in 1Q25).
2025F-26F Outlook
• We forecast moderate net profit growth for VCB in 2025, with net profit attributable to parent company shareholders projected at VND 37.0 trillion (+9% YoY). Key drivers include credit growth (post-debt sale to VCBNeo) of 12.9%, a 6 bps decline in NIM to 2.8% amid government guidance to lower lending rates, and the absence of upfront bancassurance fees from the FWD distribution agreement starting in 2025. Credit costs are expected to rise slightly to 0.26% (+2 bps YoY), driven by a reduction in provision reversals from lending to other credit institutions (VND 1,000 billion vs. VND 4,700 billion in the prior year).
• For 2026F, we project net profit growth of 12% YoY, supported by credit growth of 13.9% and a 10 bps NIM improvement to 2.9%.
Valuation and recommendation
With the current trailing P/B valuation at approximately -2 standard deviations (2.3x), the lowest in a decade, we believe that VCB offers compelling valuation upside potential. This is underpinned by (1) a positive medium-term growth outlook (PBT CAGR 2025F-28F: 15%), primarily driven by NIM recovery toward 3% as the economy’s capital absorption improves, and (2) diminishing uncertainties related to countervailing tax risks during the forecast period. Additionally, the potential upgrade of Vietnam’s stock market status serves as a catalyst for VCB’s share price, given its significant foreign ownership headroom and high weighting in the two FTSE indices that reflect Vietnam’s equity market.
Using the P/B valuation method, we set a target price for VCB at VND 73,000 per share, implying an expected return of +17% as of Jul 22nd, 2025. We recommend an ACCUMULATE rating for VCB.