VPBank’s asset quality at risk amidst housing slowdown

About 1 in 5 of its loans are real estate loans.

Vietnam Prosperity Joint Stock Commercial Bank (VPBank) should have enough buffers against asset risks, but could come under pressure if profitability remains low and with its sizeable exposure to real estate loans.

The bank’s capitalisation has improved in 2023 following sizable capital injected by Sumitomo Mitsui Banking Corporation, noted Moody’s Ratings in a report, where it reaffirmed the bank’s Ba3 long-term foreign currency and local currency deposit and issuer ratings.

Bank loans are also slated for growth by 20% to 25% and its net interest margin (NIM) will improve over the next 12-15 months because of lower funding costs.

However, the ratings agency warned the overall profitability is still low, dragged down by high funding costs, and with ongoing asset quality stress.

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VPBank's exposure to real estate loans, which constitute 20% of its total loans in December 2023, also poses risks to its asset quality and profitability because of low volumes of new housing transactions and high leverage amongst real estate developers.

“VPBank's credit cost and hence overall profitability are susceptible to asset-quality risks because of its modest provision coverage and rapidly growing exposure to real estate loans. Its profitability declined in 2023 largely due to NIM compression, driven by higher funding cost and elevated credit cost,” Moody’s noted.

The good news is that the problem loan ratio as a percentage of gross loans remains stable at 5.7%, and the asset quality of retail and small and medium enterprises (SMEs) are expected to improve through 2025.

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“The asset quality of retail and small and medium enterprise loans will likely stabilize over the next 12-18 months, as borrowers' debt servicing capacity improve on the back of a reduction in interest rates by 200-300 basis points (bp) since March 2023 and the economic recovery in 2024 and 2025 after sluggish economic growth in 2023,” Moody’s Ratings said.

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