Asia Commercial Bank’s third-quarter earnings meet expectations, but deteriorating asset quality raises JPMorgan’s concerns
Loans and the net interest margin supported revenue growth, but new non-performing loan formation accelerated and provision coverage declined. JPMorgan maintains a Neutral rating and believes near-term non-performing loan formation in Hong Kong may remain high amid elevated interest rates.
Original source：J.P. MorganFirst published on Unhidea：Original source date：
Key takeaway
Asia Commercial Bank’s third-quarter earnings were broadly in line with market expectations, but faster non-performing loan formation and declining provision coverage have made JPMorgan cautious about its near-term asset quality in Hong Kong.
Earnings met expectations: where did growth come from?
Asia Commercial Bank (ACB) reported net profit of 4.7 trillion Vietnamese dong for the third quarter of 2026, up 10% year on year and 9% quarter on quarter. It was 3% above JPMorgan’s forecast and broadly in line with the Bloomberg consensus. Profit for the first nine months reached 74% of the bank’s full-year forecast.
Loans grew 3% quarter on quarter, while net interest income rose 5% to 8.2 trillion Vietnamese dong. Despite tight liquidity in the banking system, the net interest margin rose 3 basis points quarter on quarter to 3.08%, above JPMorgan’s forecast of 3.00%.
Non-interest income rose 15% quarter on quarter, supported mainly by other operating income; net fee income and trading income fell 4% and 6% respectively. Operating costs rose 14% quarter on quarter, while pre-provision operating profit still grew 4%.
Why has asset quality become the main concern?
The non-performing loan ratio rose to 1.19% in the third quarter from 1.03% in the previous quarter. JPMorgan estimates that the annualized rate of new non-performing loan formation was 1.16% for the quarter, well above the 0.23% average for the preceding four quarters.
Stage two loans rose to 0.93% of the total, an increase of approximately 26 basis points from the previous quarter. JPMorgan believes this may reflect the impact of higher interest rates on a loan portfolio dominated by retail borrowers and small and medium-sized enterprises; with interest rates remaining high and watchlist loans increasing, near-term non-performing loan formation in Hong Kong may remain high.
Loan loss provisions for the quarter exceeded JPMorgan’s forecast, but the non-performing loan provision coverage ratio still fell to 91% from 105% in the previous quarter, meaning the buffer provided by existing provisions relative to outstanding non-performing loans weakened.
How much protection can collateral provide against risk?
Retail and small and medium-sized enterprise loans account for 90% of ACB’s loans; 96% of the bank’s loans are secured, with an effective loan-to-value ratio of 59%. JPMorgan believes extensive collateral coverage helps limit long-term loan losses.
However, long-term collateral protection and short-term non-performing loan formation are separate issues: JPMorgan expects near-term asset quality pressure in Hong Kong may persist amid high interest rates and rising watchlist loans.
Why does JPMorgan maintain a Neutral rating?
JPMorgan expects limited changes to market earnings forecasts following the results and considers asset quality performance disappointing, so it maintains a Neutral rating with a December 2027 price target of 23,000 Vietnamese dong per share.
Over the longer term, JPMorgan expects investment in digitalization to raise costs over the next two years; capital levels lower than those of some peers and prudent lending also constrain loan growth. JPMorgan forecasts annual loan growth of 14% to 15% over the next three years.
