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Slow growth of TOI

VNDirect expects TOI to grow by 10.1% YoY in FY24, which is lower than the 13.7% YoY growth in FY23, due to Non-II growth, while NII is expected to bounce back from a low base in FY23. Non-II is projected to decrease by 8.4% YoY, decelerating from a high base growth of 48.1% in FY23, which grew mainly due to a net gain from the trading of investment securities amounting to VND2.6tn (USD102mn), compared to VND20bn (USD0.8mn) in FY22. These strong net gains were due to ACB divesting G-bonds (-10.7% YoY) amid a lower interest rate environment in FY23 compared to FY22.

“We believe ACB still has this advantage in FY24, thanks to owning a large amount of G-bonds as of the end of 1Q24 (VND45.9tn/USD1.8bn). However, this advantage will be partly offset by rising interest rates. As of June 3, 2024, the Government 10Y bond has risen by 0.58% YTD. Thus, we forecast that net gain from trading of investment securities will slump by 20% to VND2.3tn (USD90bn) in FY24. As a result, Non-II might decrease by 8.4% YoY in FY24”, said VNDirect.

Stable NIM

Conversely, NII should support TOI growth, surging by 15.9% YoY in FY24 and bouncing back from a low base of 6.1% YoY in FY23. The rebound in NII will be driven by NIM and 14% credit growth. NIM is expected to maintain at 3.85% in FY24, given COF will slump 1.6% pts while AY will only decrease 1.0% pts. The robust decrease in COF will be driven by lower deposit costs and higher CASA.

VNDirect believes that the lower interest rate environment will be the main driver for a lower COF for ACB, as ACB's 12-month deposit rate has slumped 3.1% pts YTD. It expects deposit rates will bottom out in 2Q24 but will still remain at a low level. In addition, it expects CASA for ACB to improve to 23% from 22% in FY23 as a result of rising business activity, which accounts for 30%-40% of ACB's loan book.

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A boost for credit growth

VNDirect projects that ACB's credit growth will be 14.3% in FY24, slightly lower than the credit quota of 16%. Credit growth is expected to be driven by corporate loans (35% YoY) as ACB plans to target large corporate customers in FY24. ACB is likely to achieve this thanks to its pricing advantage, as its COF was 3.4% in 1Q24, the third lowest in the industry.

Meanwhile, on the retail side, which accounts for 93% of the loan book, VNDirect  believes retail loans will grow by 13.1% YoY due to: 1) the gradual recovery of the economy supporting the capital needs of business loans (30-40% of the total loan book); and 2) a low-interest rate environment and the new Land Law driving mortgage loans (30% of the loan book).

Currently, we see signs of the economy gradually returning as: 1) revenue of listed companies grew 3.6% YoY in 1Q24; and 2) export turnover increased over 14% YoY during March to May 2024.

High provisioning pressure

In VNDirect’s views, credit cost could rise 6bps YoY to 0.46% due to: 1) NPL formation improving but remaining at a high level; and 2) ACB will increase write-offs and provisioning to deal with bad debt.

As mentioned above, in 1Q24, NPL formation rose 184.4% QoQ to VND1.6tn (USD63mn), equivalent to 49.4% of group 2 loans in 4Q23. In FY24, VNDirect believes the NPL formation ratio (FY24’s NPL formation divided by FY23 group 1 and group 2 loans) will fall to 0.5%, lower than that of 1.0% in FY23. However, this is still a high level compared to the five-year average of 0.4%.

Given that NPL was 1.45% at end-1Q24 (highest level since 2014) and provision buffer stayed at a low level, VNDirect believes ACB will try to strengthen its balance sheet through write-offs and provisioning. As a result, credit cost is expected to increase 6bps YoY to 0.46% in FY24. The rise in credit cost and slowed growth of TOI will drive NP of ACB in FY24 to rise 4.9% YoY, lower than the increase of 17.2% YoY in FY23.