Military Commercial JS Bank to sustain profits despite rising bad loans

Its NPL ratio deteriorated to 1.6% in June 2024 vs 1.4% a year earlier.

The Military Commercial Joint Stock Bank (MB) should be able to maintain strong profitability and funding over the next 18 months despite its deteriorating asset quality.

High delinquencies from its retail and corporate borrowers led for MB’s asset quality to deteriorate over the past 18 months, said Moody’s Ratings.

The Vietnam-based bank’s non-performing loan (NPL) ratio has increased to 1.6% in end-June 2024, versus 1.4% in June 2023.

MB’s asset quality pressures should gradually moderate over the next 12-18 months in tandem with the higher economic momentum in Vietnam, Moody’s said.

In the meantime, MBs’ loan loss buffers provide some cushion to absorb future loan losses. Loan loss reserves as a percentage of NPLs was 102% at the end of June 2024, above the average of other Vietnamese banks’ reviewed by Moody’s. However, capitalization will remain below the average.

MB’s focus on retail and small and medium-sized enterprise borrowers meant it has lower risks of NPLs.

Capital consumption will outpace MB’s internal capital generation over the next 12-18 months, according to Moody’s. This is because its loan growth will likely remain above the banking system average. 

MB's profitability is a key credit strength, with its 2.1% annualized return on tangible assets higher than the average of around 1.5% amongst its Vietnam peers. 

“The bank's strong profitability is underpinned by its higher net interest margin, which benefits from its good access to low cost deposits and mitigates the impact of higher credit costs,” Moody’s said.

Funding is another strength of MB, thanks to tis lower reliance on market funding compared to other Vietnamese banks. 

MB’s “high-quality” liquid assets such as cash, balances with central bank and government securities accounted for just 9% of its total assets over the same period, reflecting its limited buffers in times of need, Moody’s said.