Aggressive loan growth leaves HDBank more vulnerable to risks

Its asset quality may be further strained by its planned acquisition of a ‘weak’ bank

HDBank’s aggressive loan growth poses unseasoned risks to its asset quality and can strain its capital and funding, warns Moody’s Investors Service.

The ratings agency changed its outlook for the Vietnamese bank to negative amidst uncertainties on HDBank’s credit profile, particularly for its planned acquisition of a weak bank. HDBank may be required to provide capital or liquidity to support the target bank, Moody’s said.

HDBank reported strong profitability for the first three months of 2023, with annualized return on assets at 2.4%. This is higher than the average of 1.7% for other Vietnam-based banks. The bank also reported a low nonperforming loan or NPL ratio, which was at 1.9% for the first quarter of 2023. This is lower than the average 2.3% of other banks in Vietnam rated by Moody’s. 

However, its low bad loans ratio is masked by its rapid loan growth. Loans grew 30% in 2022 at an annualized rate of 36% in the first three months of 2023. This is more than double the industry growth rate of 14% and 10%, respectively.

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“The bank's focus on retail and small-and-medium enterprises borrowers has resulted in low concentration risk and reduces the risk of a spike in nonperforming loans,” Moody’s said.

But higher credit losses and increase in funding costs will hurt the bank's profitability over the next 12-18 months, Moody’s warned.

“The bank's high reliance on market funds and modest liquidity also pose risks. As of 31 March, market funds as a percentage of tangible banking assets was elevated at 31% whilst the share of high-quality liquid assets was a modest 9% of the bank's tangible banking assets, providing limited buffer in times of need,” Moody’s said.