VIB faces asset risks and capitalization strain amid rising NPLs

NPL ratio rose to 3.7% in June 2024.

The Vietnam International Commercial Stock Bank (VIB) will suffer from weakened profitability amidst strong loan growth through 2026, which in turn could strain its capitalization.

VIB’s nonperforming loan (NPL) ratio rose 3.7% in end-June, compared to 3.2% a year earlier. 

Asset risks are expected to remain high, as it will take time for the Vietnamese bank to resolve its problem loans, Moody’s Ratings said in its latest ratings commentary of the bank, where it maintained VIB’s negative outlook.

Its low loan loss coverage, representing 48% of NPLs as of June 2024, provides modest buffers against future losses, the ratings agency said.

Capitalization will likely come under pressure over the next 12 to 18 months due to weaker internal capital generation and strong loan growth. 

Loans grew 15% in 2022 and 2023, and Moody’s projects that VIB’s loan growth will remain robust between 15% to 20% over the next 12-18 months.

“Over the next 12 to 18 months, its profitability will likely remain broadly at current levels due to tightened net interest margins and elevated credit costs. In addition, its non-interest income will moderate due to a normalization of net gains from its trading of foreign currencies and slower bancassurance sales,” Moody’s said.

Nonetheless, a recovery from written-off loans can offset some strain on its profitability, the ratings agency said.

VIB’s capital could come under further strain if it decides to buy back shares from Commonwealth Bank of Australia (CBA).

In June 2024, VIB passed a shareholders' resolution to reduce the foreign ownership limit to 4.99% of the bank's charter capital from 20.5%. CBA owns about 20% of VIB's charter capital, Moody’s said.