Vietnam Investors Service And Credit Rating Agency JSC (VIS Rating) has recently evaluated the long-term issuer credit rating at A for Lien Viet Post Joint Stock Commercial Bank (LPBank). The outlook for LPBank’s A issuer credit rating is stable. 

The A long-term issuer credit rating reflects LPBank’s above-average standalone credit strength and VIS Rating’s expectation of average government support for the bank when necessary. The assessment of LPBank’s standalone credit strength reflects its asset risk, earnings ability, and capital adequacy at above-average levels, as well as its capital structure and liquidity at average levels compared to peers.

Specifically, at the end of 2023, retail lending accounted for 42% of total customer loans, Small and medium-sized enterprises (SMEs) lending was 41%, and large corporate lending was 17%. Over the past three years, LPBank’s non-performing loan (NPL) ratio has ranged from 1.3% to 1.5%, compared to the industry average of 1.9%. In 2023, most of the bank’s NPL came from the retail segment. The loan loss reserve coverage ratio averaged 118% from 2021 to 2023, compared to the industry average of 109%.

VIS Rating also assessed LPBank’s asset risk as ‘Above Average’ due to its ability to control asset quality and superior NPL coverage compared to the industry average. The rating also reflects a recent deterioration in the quality of the retail lending portfolio alongside the bank’s ability to maintain low credit losses.

“Additionally, in the next 12-18 months, we expect the overdue status in the bank’s retail and SME lending portfolios to gradually decrease through tightened lending standards and improved customer repayment abilities in a low-interest rate environment,” VIS Rating noted.

VIS Rating positions LPBank’s earnings ability as ‘Above Average’ to reflect the improvement in operating profitability and consistently low credit costs over the past years, as well as our expectation of stable earnings ability in the next 12-18 months.

Moreover, LPBank has been aggressively lending to large conglomerates as part of its strategic business direction to enhance its loan portfolio structure and funding sources. Over the past three years, new lending has been focused on enterprises in the real estate, construction, and power production sectors.

Over the last five years, LPBank’s return on average assets (ROAA) has gradually improved from 0.8% in 2019 to above the industry average of 1.6% by the end of 2023, mainly due to branch network optimization, leading to improved operational efficiency. By closing nearly 25% of its postal transaction offices and focusing on developing efficient postal transaction offices, the bank’s cost-to-income ratio (CIR) significantly decreased to 31% in the first quarter of 2024 from the high of 60% in 2019.

LPBank’s net interest margin (NIM) was 3.3% at the end of 2023, equivalent to the industry average. Most of the bank’s lending is concentrated on retail and SME clients with higher interest rates, offsetting the higher cost of funds compared to peer banks.

VIS also positions LPBank’s capital adequacy as ‘Above Average’ to reflect its higher core capitalization due to recent capital increases. The bank’s common equity Tier 1 capital ratio to risk-weighted assets (RWA) increased to 9.7% at the end of 2023 from 8.3% in 2021 after a total capital increase of VND8 trillion ($313.67 million). The bank’s Capital Adequacy Ratio (CAR) under Basel II standards was 12.2% at the end of 2023, higher than the industry average of 11%.

“The A rating for LPBank includes our assumption of average government support in special cases. This assumption considers the bank’s widespread presence nationwide as well as the new legal framework providing regulators with more tools and mechanisms to address weak banks,” stated VIS. “Additionally, LPBank is among the 14 systemically important banks under Decision 538/QD-NHNN approved by the State Bank of Vietnam (SBV)”.