CTG - CTG makes preemptive move on provisions in Q2 2021 - Earnings Flash

CTG released H1 2021 results with TOI of VND27.0tn (USD1.2bn; +30.7% YoY) and NPAT-MI of VND8.7tn (USD377mn; +44.8% YoY), achieving 48.9% and 42.7% of our FY2021 forecasts, respectively. The increase in the bottom line was mainly due to (1) a 32.7% YoY increase in NII, (2) 22.1% YoY increase in pure NFI and (3) 234% YoY increase in net other income, which were partly offset by (1) a 16.7% YoY increase in OPEX and (2) 28.1% YoY increase in provision expenses. On a quarterly basis, Q2 2021 NPAT-MI fell by 38.2% YoY to VND2.2tn, which was mainly caused by a 222% YoY increase in provision expenses. We see potential downside risk to our current forecasts for CTG, pending a more extensive review.

NII maintained its strong momentum in H1 2021 with NIM expanding 44 bps YoY. CTG reported H1 2021 NIM of 3.17% (+44 bps YoY) as a result of (1) a 129-bp YoY decline in COF that outweighed an 82-bp YoY decrease in IEA yield and (2) faster pace of loan growth relative to deposit growth in 6M 2021 (6.0% and 5.0%, respectively). We attribute the significant YoY drop in H1 2021 COF mainly to the deposit rate cuts by the State Bank of Vietnam (SBV) from November 2019 to October 2020 as well as a 2.3-ppt YoY increase in CASA ratio. Meanwhile, we believe the decrease in the IEA yield was mainly due to a lending rate support package for customers affected by COVID-19. CTG announced that VND2tn of interest income was sacrificed in H1 2021 as part of the bank’s efforts to support its customers during the COVID-19 pandemic. On a QoQ basis, Q2 2021 NIM declined by 9 bps YoY owing to a 24-bp QoQ decrease in IEA yield despite a 17-bp QoQ decrease in COF.

H1 2021 NOII delivered solid growth of 23.5% YoY thanks to growth in pure NFI as well as net other income. CTG reported H1 2021 NOII of VND5.5tn (+23.5% YoY), which was mainly driven by (1) a 22.1% YoY increase in pure NFI to VND2.6tn and (2) 234% YoY increase in net other income that was mainly driven by a 97.8% YoY increase in recovery from written-off bad debts, according to the bank. These are partly offset by (1) a 17.4% YoY decrease in gains from FX trading, (2) 35.9% YoY decrease in gains from trading securities and (3) loss of VND88bn from investment securities vs a gain of VND135bn in H1 2020. We believe that CTG has not yet booked the upfront fee from the exclusive bancassurance deal with Manulife in H1 2021.

H1 2021 provision expenses increased by 28.1% despite the fact that CTG had to book provision for VAMC in H1 2020 (CTG cleared all VAMC by Q4 2020), completing 76.6% of our full-year forecast. According to CTG, this was partly a result from actions of the bank to book additional provision expenses for restructured loans under Circular 03/2021 above the regulatory requirement threshold to increase the bank’s ability to deal with economic uncertainty amid the fourth wave of the COVID-19. Q2 2021 LLR increased to 129% from 80.9% in Q2 2020.

CIR remained low in H1 2021 at 28.5%.  A 30.7% YoY increase in H1 2021 TOI outweighed a 16.7% YoY increase in OPEX. 

Asset quality experienced a slight deterioration in Q2 2021. The Q2 2021 NPL ratio declined by 36 bps on a YoY basis but increased by 46 bps QoQ, which was caused by CTG actions to restructure large customer loans, according to the bank. CTG recorded a VND2.3tn of write-offs in H1 2021 — equivalent to a write-off rate over gross loans of 0.22%. Q2 2021 accrued interest over IEAs increased by 5 bps YoY but decreased 2 bps QoQ. Meanwhile, Q2 2021 group 2 loans over gross loans remained relatively the same compared to Q1 2021 while decreasing 23 bps YoY.