According to the latest assessment from the prestigious financial institution JP Morgan, Vietnam Technological and Commercial Joint-Stock Bank (Techcombank) was the bank with the highest Return On Asset ratio (ROA) in the banking system. Moreover, Techcombank was said to be one of the rare banks in the region making profit on both sides of the balance sheet, with a long-term strategic vision of profit. JP Morgan pointed out three causes of the high ROA of Techcombank.
At the recent meeting with analysts to update business results in Q3/2019, Techcombank announced the first nine months’ revenue of 14.4 trillion dong, profit before tax of 8.9 trillion dong, an increase of 19 percent over the same period last year and reached 75 percent of the target set for 2019.
Nguyen Le Quoc Anh, general director of the bank, said that this was the 16th quarter of Techcombank with continuous revenue growth. Regarding return on equity, or return on total assets (ROA, ROE), Techcombank was currently the bank with the highest performance in the whole domestic banking industry and could be said to be one of the two most effective banks in the region, along with Bank Central Asia of Indonesia. The above information from Techcombank was agreed by JP Morgan in their report and analysed three reasons for the high ROA of Techcombank. According to JP Morgan, the first factor that helped Techcombank become the leader in ROA was the strategy to focus on increasing the demand deposits, leading to a 19 percent increase in the Current Account Savings Account (CASA) rate in seven years to 30%.
The second factor was the aggregate asset structure between corporate bonds and individual customer loans having high interest rates. The third was the leading position in the debt capital market in both corporate bond issuance and distribution. Analysts believed that these factors would lead to high profits maintained in the near future.
According to the business results report for Q3/2019, Techcombank currently mobilised 218.7 trillion dong, helping the bank maintain abundant liquidity. The ratio of loans to deposits reached 70.9%, much lower compared to the 80 percent limit of the State Bank of Vietnam (SBV). The rate of short-term capital used for medium and short-term loans was 36.1%, lower than the legal requirement of liquidity of less than 40%. Non-Performing Loan (NPL) ratio maintained at 1.8%. Provisions decreased by 66 percent as Techcombank continued to benefit from good asset quality.
Techcombank’s total assets in nine months reached 367.5 trillion dong, mainly thanks to impressive loan growth of 28.4%. Simultaneously, the Bank sold corporate bonds to balance the credit growth limit of SBV. As a result, Techcombank’s total assets increased by only 15 percent compared to the end of 2018. Capital adequacy ratio at the end of the period under Basel II reached 16.5%, twice as high as the minimum requirement of Pillar I Basel II.
According to Vu Minh Truong, director of Techcombank’s Capital and Financial Market, one of the factors that had a substantial impact on Techcombank’s business results and strategy was Vietnam’s financial market, particularly the US-China trade war making the foreign direct investment into Vietnam (FDI) increase rapidly. Domestically, the government’s revenue and expenditure balance and the US dollar exchange rate were stable. Besides, the income of the people also increased, the proportion of the population with high and medium-income would continue to grow around 30 percent until 2025. That was the target customer segment that Techcombank aimed to.
Tran Thi Minh Lan, director of Techcombank’s Strategy Division, said with the goal of focusing on customers, Teckcombank was implementing a centralised strategy on three platforms, including Human Resources, Risk Management and Operations, and excellent data. According to Minh Lan, building excellent data helped Techcombank understand customers, thereby developing services and options suitable to each target customer segment, creating conditions for customers to identify actively, thus better risk management for the bank.
With this strategy, Minh Lan said that Techcombank’s organisational health index (OHI) in 2019 reached 88, among the top 25 percent of banks in Southeast Asia. The Employee Engagement Survey (EES) index reached 74 percent in 2019, being in the top 20 percent of the region.
Talking about Techcombank’s business activities, Phung Quang Hung, director of Sales and Distribution Channel, said that Techcombank’s orientation was to develop the retail segment vigorously, and in fact the bank had grown well at this. Compared to two years ago, the proportion of individual customer loans to total bank loans increased from 40 percent to 48%. Of the entire retail loan of 99 trillion dong, home loans accounted for 82%, five percent was car loan, four percent was credit card.
Investing heavily in digital solutions increased CASA
Returning to JP Morgan’s report, the organisation assessed that Techcombank’s cost of financing (CoF) had continuously decreased over the past five years due to increased CASA rates. This was thanks to the strong growth in the network (from 282 points in 2010 to 313 points) and digital investment creating a sharp increase in the number of customers and e-banking transactions. Along with that were the improvement of additional selling, cross selling and reasonable control of operating costs.
About this content, Phung Quang Hung gave data demonstrating the bank’s achievements when investing heavily in digital solutions.
From September 2016, when Techcombank started the programme of free fee of all electronic fund transfer (E-Banking 0 dong), the number of transactions of individual customers was only about 500 to 600 thousand transactions per month, by September 2019 the number had increased to 17 million to 18 million transactions per month, with an increase of nearly 30 times.
From the operational perspective, assuming that these transactions still needed to be processed by the branch teller, Techcombank had reduced about 30 times of operating costs. Since then, Techcombank had contributed to changing the way Vietnamese people using money, especially minimising the cash habit of citizens as called by the government.
With the above business orientation, in 2019, Techcombank expected to have more than one million new customers. Based on the quality of service and electronic channels, Techcombank’s CASA increased by 13 percent compared to the beginning of the year. At present, CASA rate on total mobilisation of Techcombank reached 30%, according to Phung Quang Hung.
JP Morgan expected, Techcombank would continue to maintain profit growth and TCB shares would continue to excel in the next 12 months (valued at 40,000 dong per share). This was also a testament to the belief of the shareholders in the long-term value of the bank when it had consistently accompanied the strategy for the past 10 years. Since then, Techcombank had continued to invest in excellent human resources and upgraded its modern information technology system to continue improving service quality for customers. Techcombank was currently implementing an IT investment plan to automate and digitise customer experience journeys, further enhancing customer convenience.
