According to the report of Viet Dragon Securities Company (VDSC) on Vietnam Technological and Commercial Joint Stock Bank (Techcombank, HoSE: TCB), the bank said that the impact of the Covid-epidemic is only for a short term and long-term advantages remain unchanged. Techcombank sees that Vietnam’s macroeconomic prospect is still positive with forecast of real Gross Domestic Product (GDP) growth of four to five percent in 2020.
The bank believes that the bank can stand still in the difficult Covid-19 epidemic situation, thanks to the strong capital source with the highest Basel II ratio in the banking industry (15.5%) and the lowest leverage ratio (assets on equity) of 6.2 times. The abundant banking liquidity (the ratio of short-term funds used for medium and long-term loans of 38.4%) and Lending to Deposits ratio (LDR) of 76.3%) is sufficient to meet the needs of customers even when the economic situation worsens.
The bank recorded a low Cost to Income Ratio (CIR) of only 34.7%, low credit cost of only 0.5%, credit growth of 19 percent in 2019 and profit growth of up to 20%, resulting in a Return on Assets of 2.9%.
Techcombank’s outstanding loans to sectors that have been significantly hit by the Covid-19 such as tourism, hotels, and construction only account for 10 percent of the bank’s total outstanding loans. The outstanding loans to small and medium enterprises (SMEs) account for 19 percent of the total lending, equivalent to 17 percent of the total credit. The strong capital source and the ability to maintain operations during this period will help Techcombank continue to serve the needs of customers. The bank is currently leading in a number of areas such as home loans, VISA cards, bond distribution, electronic banking, and ranks second in Current Account Savings Account (CASA) ratio.
Circular 01/2020 will enable Techcombank to provide better support to business customers affected by the epidemic. The bank said that the number of loans to be extended/ restructured to date is still relatively small.
Techcombank’s credit growth is forecasted to slow down compared to 2019. The bank achieved high credit growth of 19 percent in 2019, but the initial assigned credit growth limit in 2020 is only 13 percent (this is the highest level assigned to banks at this time).
According to VDSC, the actual credit growth will be limited by the credit orientation of the State Bank of Vietnam (SBV), because Techcombank is likely to boost lending in order to fully use the assigned credit growth room.
With the basic scenario that the epidemic will be controlled in the second quarter (Q2), VDSC expected that the SBV will grant more credit growth room for banks, particularly 15-16 percent for Techcombank’s case and the bank will use up this limit.
Techcombank has announced a loan support package worth 32 trillion dong for customers with 20 trillion dong for corporate customers and 12 trillion dong for individual customers. Both of which can enjoy preferential interest rate cut of up to two percentage points. This package is equivalent to 12.2 percent of the bank’s outstanding credit in 2019 and is expected to lower the average lending rates.
According to Techcombank, from the beginning of the year until now, the bank’s Net Interest Margin (NIM) is tending to slightly decline due to the preferential loan package, but the overall impact on NIM in 2020 will be negligible. VDSC said that Techcombank has an advantage over other banks in maintaining good CASA growth and reducing capital costs during the epidemic period, so it is able to further reduce the capital costs to offset the reduction of lending rates in the near future. However, the bank’s interest income growth is expected to slow down due to the lower credit growth and the pressure from the epidemic on NIM.
The asset quality depends heavily on the development of the epidemic and the outlook of the real estate industry. Although the loans to industries only account for 10%, it does not include corporate bonds (accounting for 11.8 percent of the outstanding loans), of which a large proportion is likely to be issued by businesses in resort real estate field.
In addition, the outstanding loans related to real estate, including loans to investors, contractors and home buyers, account for up to 77.2 percent of the total outstanding loans at Techcombank. According to the bank’s information, the bank’s customer base is mostly high-income people (for individual customers) and large-cap businesses, they are the segments which may have reserves to overcome this period.
Nevertheless, VDSC still holds a cautious view on the bank’s centralised risk when the proportion of outstanding loans to real estate sector which is also fairly sensitive to economic fluctuations is high. This could affect the bank’s asset quality when the epidemic is prolonged and effects the real estate industry stronger than expected.
Expectation of benefiting from a discount of NAPAS
One hand, bancassurance and bond service fees are expected to be affected in the context of the epidemic. Regarding the distribution of bonds to individual customers, Techcombank affirms that its customers, particularly high-income ones, still have demand for investment products, especially when deposit interest rates are on the downward trend.
Therefore, Techcombank will continue to promote telesales and online sales (including mobile application) to maintain the distribution of bonds to customers when the number of customers coming to the counter decreases. On the other hand, VDSC also expects Techcombank to benefit from NAPAS’s policy of reducing interbank money transfer fees, along with the non-cash payment trend which is accelerated in the context of the epidemic.
Techcombank has adopted a free transaction policy since 2016 to attract customers and CASA, so the higher the number of online transactions, the higher the payment costs but thanks to the policy, the bank’s net interest income from payment tends to fall (and slows down the growth of service income). However, this can turn into an advantage when interbank money transfer fees are cut and help improve the growth of service fee income.
