OVERVIEW: VIETNAM FINANCIAL - BANKING INDUSTRY
Industry overview
1.1.1 Important macroeconomics indicators a Inflation rate:
Source: State bank of Vietnam
In 2019, the average Consumer Price Index (CPI) rose by 2.8% compared to 2018, which had a higher increase of 3.58% This indicates that the CPI was effectively managed, remaining below the National Assembly's target of 4% and achieving the lowest growth rate in the past three years.
In 2020, Vietnam's consumer price index (CPI) experienced a 3.23% increase compared to the previous year, driven primarily by rising food prices, medical costs, and higher tuition fees However, government initiatives aimed at supporting businesses and individuals, including reductions in electricity prices, played a crucial role in controlling inflation.
Interest Rate in Vietnam remained unchanged at 4% in June 2021 The maximum level was 15% and minimum was 4%
INTEREST RATES VALUE DOCUMENT NO EFFECTIVE DATE
Discount Rate 2.500% 1728/QĐ-NHNN on 30-09-2020 10-01-2020
Refinancing rate 4.000% 1728/QĐ-NHNN on 30-09-2020 10-01-2020 c) Exchange rate:
Source: State bank of Vietnam
In 2018, the global financial landscape was marked by stability in monetary and financial markets, despite the unpredictable fluctuations caused by varying monetary policies among key economies worldwide.
In 2019, the USD/VND exchange rate experienced a steady increase while maintaining stability, largely due to the State Bank of Vietnam's effective operating policies amidst the pressures of the US-China trade war.
Source: State bank of Vietnam
The State Bank of Vietnam (SBV) reported that despite challenges posed by the Covid-19 pandemic and international market fluctuations since early 2020, the exchange rate and foreign currency market have largely remained stable Market sentiment has been unaffected, with a favorable balance of supply and demand and smooth liquidity.
1.1.2 Business situation and activities of the banking industry in Vietnam
The Covid-19 pandemic has severely impacted businesses since 2020, leading many to face significant losses and even bankruptcy As the fourth wave of the pandemic continues into 2022, the economy remains sluggish, and businesses struggle to recover to pre-pandemic levels, resulting in a diminished ability to repay debts According to the State Bank of Vietnam, the bad debt ratio rose from 1.69% at the end of 2020 to 1.78%, which, while not alarming, poses a potential risk for banks amid ongoing pandemic challenges Many businesses have sought debt postponement due to their current financial hardships, highlighting the ongoing economic strain.
The State Bank of Vietnam has formally requested credit institutions to evaluate their operational status and the effects of the Covid-19 pandemic, while also formulating strategies to address bad debts for the 2021-2022 period This assessment will enable the State Bank to devise plans for managing bad debts through the end of this year and into 2022 Maintaining the bad debt ratio on balance sheets below 2% is anticipated to be a significant challenge moving forward.
Banks have significantly increased their provisioning to manage risks, setting aside 0.75% of loan capital for general risk provisions, excluding specific risks by debt group A higher provisioning ratio allows banks to better address bad debts To effectively control bad debts, it is crucial for banks to support struggling businesses, enabling them to recover and repay loans Recently, 16 major commercial banks, representing 75% of outstanding loans, have lowered interest rates on existing loans, affecting an estimated VND 6.8 million billion This interest rate reduction, ranging from 0.5% to 2% per year, aims to assist more businesses facing financial challenges.
1.1.3 Governmental regulations a Common published regulations:
Circular No 22/2019/TT-NHNN prescribes limits and prudential ratios which banks and foreign bank branches must constantly maintain in their operations, including:
Maximum ratio of short-term capital sources for medium / long-term loans
Government bond or government-guaranteed bond purchase or investment ratio
Capital contribution and share purchases
Circular No 01/2020/TT-NHNN mandates credit institutions and foreign bank branches to restructure repayment periods, as well as to waive and reduce interest rates and fees, in order to support customers impacted by the COVID-19 pandemic while maintaining debt classification.
Circular No 13/2020/TT-NHNN providing guidance on procedures and dossiers for approval of the provisional personnel list of commercial banks, non-bank credit institutions and foreign bank branches
Circular No 41/2016/TT-NHNN deals with the capital adequacy ratio for operations of banks and/or foreign bank branches in Vietnam
Circular No 09/2020/TT-NHNN specifies minimum requirements for assurance of information system security in baking operations, applies to:
Credit institutions, branches of foreign banks, and intermediary payment service providers, credit information companies
The National Payment Corporation of Vietnam (NAPAS), Vietnam Asset
Management Company (VAMC), National Banknote Printing Plant, Deposit Insurance of Vietnam
Institutions which have established and used the information system for one or more organization’s technical and professional activities
Circular No 210/2009/TT-BTC mandates the disclosure of the fair value method, along with detailed information regarding the fair value of financial assets and liabilities, enabling a comparison between fair value and book value.
Decree No 93/2017/NĐ-CP prescribes the financial regime, applicable to:
Credit institutions and foreign bank branches
Financial supervision and assessment of efficiency of state capital investment at credit institutions with 100% state-owned charter capital and credit institutions with state capital b Related regulations:
Circular No 96/2020/TT-BTC prescribes the disclosure of information on the
The Law on Credit Institutions No 47/2010/QH12 regulates the establishment, organization, operation, special control, reorganization, and dissolution of credit institutions, including foreign bank branches and representative offices of foreign banking entities.
The Law on Securities No 54/2019/QH14 outlines the framework for securities market activities, detailing the rights and obligations of both institutions and individuals involved in the securities sector It also establishes the organization of the securities market and the state's role in managing securities and market operations.
Law on Enterprises No 59/2020/QH14 prescribes the establishment, management organization, reorganization, dissolution, and relevant activities of:
Enterprises, including limited liability companies
Joint stock companies, partnerships and sole proprietorships
Decree No 71/2017/NĐ-CP guidelines for the issues in connection with corporate governance of public companies, including:
Board of directors / Board of controllers
General information about Techcombank
Techcombank’s general information compression table
Official name: VIETNAM TECHNOLOGICAL AND COMMERCIAL
Stock code TCB VN (HCM City Stock Exchange)
Central / Head office: Techcombank Tower – 191 Ba Trieu St., Le Dai Hanh Ward, Hai Ba Trung Dist., Hanoi, Vietnam
Subsidiaries Techcom Securities Joint Stock Company (Techcom Securities –
Techcom Capital Joint Stock Company (Techcom Capital - TCC)
Vietnam Technological and Commercial Joint Stock Bank – Asset Management Company Limited (Techcombank AMC)
Business description and competitive positioning
Founded in 1993, TECHCOMBANK emerged as a market-oriented financial institution, transitioning from a centrally-planned economic model Initially starting with a charter capital of just 20 billion VND, Techcombank has grown significantly over nearly three decades, now ranking third among banks in Vietnam in terms of charter capital.
1.3.1 Business Introduction: a Scope of activities:
Providing products and services for over 8 million RETAILED and CORPORATE customers (Inland and Worldwide)
Network: 1 head office, 2 representative offices, 309 transaction offices (45 cities + provinces), 3 subsidiaries, 4 funds
=> Extensive connections to satisfy basic banking requirements, yet furthermore extends toward a more secured, cutting-edge and professional wealth management b Vision - mission:
Techcombank is dedicated to the vision of "CHANGE banking, CHANGE lives," striving to uplift everyone to achieve their full potential With a strong focus on understanding customer insights and delivering exceptional value to customers and shareholders, Techcombank stands out with impressive performance compared to its competitors.
Techcombank is on a mission to seamlessly integrate advanced technologies with traditional banking services, positioning itself as a strong contender to lead Vietnam's digitized financial sector.
Grant of Long, Medium and Short-term loans
Association, Joint-ventures, companies, bonds investments
Short, Medium, Long-term deposits (Individuals / Organizations)
Approved settlement, cash and banking services (through the State Bank of Vietnam - SBV)
Techcombank's commitment to sustainable development and strong foundational principles enables it to adapt to the evolving demands and trends in the financial services sector The bank's focus on innovation and adaptability has been crucial to its success and growth in a competitive landscape.
Further Develop / Maximize digital platforms / tools / dashboards
Maximum convenience / satisfaction - Minimum difficulties / errors
Deeper customers’ insights capturing methods
Personalized recommendations based on transaction data clouds
Humans play a crucial role: Attract, develop and retain best people
Excellent recruitment with skills and “digital DNA” that match Techcombank’s vision
Impressive leadership and directions from the Board
Recognized as a bold and ambitious aspiration with a clear customer-centricity strategy (D-D-T), Techcombank has received remarkable transformation from the long journey, with practical goals:
Largest market capitalization: IPO market capitalization at USD 6.5 billion
>10% market share in 2020: >10% market share in affluent segment, mortgage, bancassurance, card, e-transactions
30% growth per year: 31% NOII/TOI, 52% PBT growth CAGR from 2016–2020
4 products / customer: 4 products / affluent customer c 2021-2025 strategy:
The success of the Techcombank’s 2016–2020 journey has laid a solid foundation for the next five-year transformation (2021–2025) of the Bank with its numerous aspirational goals:
CASA ratio ~55%, NFI/TOI ratio ~30%
Continue investing in three key enablers (D-D-T) with insurance of core areas
Diversifying sources of income, capital and risks to ensure future sustainability and extend future growth areas
Although suffering from numerous difficulties in 2020; especially with the wild-fire spread of COVID-19 pandemic, Techcombank proudly navigated through the storm and gained exquisite results during the year:
Successful partnerships with international business like VISA, Manulife, ; new alliance with One Mount Group (Vietnam’s largest digital ecosystem)
Rewarded as the 2020 ‘Best Bank in Vietnam’ (Best SME, Payments Bank) by Finance Asia and ‘The best companies to work for in Asia’ by HR Asia
2020 Vietnam Best Places to Work; 2020 Most Attractive Recruiter for Students
Techcombank is leveraging macroeconomic trends and embracing digital transformations to position Vietnam as a global leader in the financial market.
(Via the Techcombank Official Financial Statement 2020)
In 2020, Techcombank described the year as "Unprecedented" due to its remarkable results, which were bolstered by the Vietnamese government's effective response to COVID-19 This success led to significant financial gains and positive global records for the bank.
A spectacular year has gone by with outstanding financial outcomes from Techcombank The following are highlighted indicators specified by Techcombank in their previous year of 2020:
Disclaimer: The data below indicated changes in years of 2016, 2019 and 2020 followed the 5-year strategy of Techcombank (2016-2020), besides support by numbers from the latest year from 2020 - 2019 a Profitability ratio:
CASA ratio / balance: 46.1% / VND 128,038 Billion (2020) vs 34.5% / VND
The increased CASA balances and the remarkable ratio of 46.1% - ranked 1st among
Commercial Banks in Vietnam has partly enhanced the Net income of the Bank as well as reduced funding costs and driven Techcombank toward a more sustainable development
Techcombank reported a significant increase in customer deposits, reaching VND 277,459 billion, marking a 20% year-on-year growth This surge is partly attributed to a notable 42.9% rise in retail e-banking customers, which has directly contributed to an improvement in the bank's CASA ratio.
The bank has actively reduced its term deposit rates to decrease the overall cost of funds In 2020, the decline in interest rates led to lower CASA and term deposit rates, resulting in an unexpectedly positive net interest margin (NIM).
PBT: VND 15,800 Billion (2020) vs VND 12,838 Billion (2019)
TOI: VND 27 Trillion (2020) vs VND 21 Trillion (2019)
The upgrade of TOI results in a 28.4%YoY growth, indicating a stable and beneficial mix among interest and non-interest income The TOI structure of 2019 and 2020 witnessed a slight transfer:
Net interest income raised 31.5% YoY, claimed by changes from:
‣ Lower funding costs from declining term deposit rates
Net fee income grew 28.8% despite drawbacks from COVID 19:
‣ Bond related income contribute the largest portion (51,6%)
‣ Higher bond yields in a declining interest rate environment c Capital adequacy ratio:
Techcombank achieved a Capital Adequacy Ratio (CAR) of 16.1%, demonstrating its strong capitalization ability to support customer financial activities and bolster economic growth in the post-COVID-19 recovery Additionally, Techcombank ranked first among listed banks in terms of CAR, highlighting its robust liquidity position.
LDR: 78.1% (2020) vs 76.3% (2019) vs 71.8% (2016) e Credit balance:
VND 318,035 billion (2020) reflects credit growth of 23,3% YoY
Since 2019, corporate customers have shown remarkable resilience, with credit demand rising from 43% to 50% In contrast, retail and SME credit demand was significantly impacted in early 2020 due to the COVID-19 pandemic This increase in credit balance has played a crucial role in sustaining the Bank’s robust capital position and strategic business focus.
ANALYSIS OF BANKING SERVICES
Deposit services
2.1.1 Deposit categorized by type of customers:
Other joint stock companies 23,263,620 11.55 28,612,952 12.37 39,532,016 14.25 Other limited liability companies 25,735,319 12.78 22,375,849 9.67 30,606,797 11.03 Foreign invested enterprises 2,898,416 1.44 3,746,288 1.62 4,249,447 1.53
Source: Notes to the financial statement – Techcombank (2018-2020)
Deposit services at Techcombank are categorized based on customer types and account types, providing insight into the bank's deposit activities from 2018 onwards.
Our investigation focused on significant deposit types, specifically individual customers, joint stock companies, limited liability companies, and foreign invested enterprises Notably, deposits from individual customers consistently represented approximately 70.51% to 72.29% over a three-year period from 2018.
In 2020, individual capital significantly contributed to the funding of commercial banks like Techcombank, with deposits from joint stock companies rising by 2.7% from 2018 to 2020, increasing from 11.55% to 14.25% This growth can be attributed to Current Account Savings Accounts (CASA), which offer low or no interest on current accounts while providing above-average returns on savings Notably, in 2019, the bank experienced an 83% growth in CASA deposits from individual customers, driven by a rising demand for digital banking services Conversely, deposits from limited liability companies showed volatility, dropping from 12.78% in 2018 to 9.67% before rebounding to 11.03% The Covid-19 pandemic prompted many Vietnamese companies to maintain higher cash reserves, further influencing their deposit behaviors.
On November 18, 2019, the Bank of Vietnam lowered term deposit interest rates, leading to a decline in deposits from limited liability companies due to reduced attractiveness and profitability However, the economic recovery in 2020, coupled with Techcombank's current account policy, has incentivized companies to maintain higher balances in their accounts.
2.1.2 Deposit categorized by type of account:
2020 VND million VND million VND million
Current accounts in foreign currencies 6,487,051 5,756,332 6,858,805
Term deposits in foreign currencies 6,977,707 5,939,932 5,291,936
Marginal deposits in foreign currencies 108,037 151,573 78,490
Source: Notes to the financial statement – Techcombank (2018-2020)
Between 2018 and 2020, there was a notable growth in deposit services, as illustrated by the data All types of deposit accounts, including current accounts, term deposits, and marginal deposits, experienced a consistent upward trend during this period.
Between 2018 and 2020, Techcombank experienced a remarkable increase in current account deposits, soaring from 54,612,613 million VND to 122,972,489 million VND, marking a growth of 55.59% This surge can be attributed to the bank's digitalization strategy, which enhanced its digital banking system and boosted the CASA ratio from 28.7% in 2018 to 34.5% in 2019, and further to 55% in 2020, establishing Techcombank as the market leader in CASA Conversely, the interest rates on term deposits saw a slight decline, influenced by Decision number 2415/QĐ-NHNN from the State Bank of Vietnam on November 18, 2019, resulting in an overall decrease of 2,160,921 million VND in term deposit accounts.
2019 to 2020 The same descending trend in the smaller account of term deposits in VND and in foreign currencies Marginal deposits only accounted for the smallest percentage of deposit
P a g e 18 | 48 accounts; however, from 2018 to 2020 witnessed 58% increase in the marginal accounts, especially increase in VND accounts In contrast, marginal deposits in foreign currencies decreased 29,547 million VND
In 2019, term deposits experienced lower maximum interest rates compared to 2018 due to a directive from the State Bank of Vietnam, which aimed to reduce interest rates effective November 19, 2019 According to Decision No 2415/QD-NHNN, the maximum interest rate for VND deposits at credit institutions was adjusted, decreasing the rate for demand deposits with terms under one month from 1.0% to 0.8% per year, and for deposits with terms between one month and six months from 5.5% to 5.0% per year.
In response to the Covid-19 pandemic, Techcombank adjusted its term and demand deposit interest rates between 2019 and 2020, aligning with the State Bank's directive for financial institutions to balance their lending rates and reduce operating costs This strategic move aimed to support businesses and individuals during challenging times Consequently, in 2020, the bank lowered both term and demand deposit rates to reflect economic fluctuations, contributing to market stability As a result of these interest rate reductions, Techcombank experienced a decline in CASA and term deposit rates, which ultimately enhanced its net interest margin (NIM).
The rising percentage of customers depositing money in banks correlates with an increase in interest expenses Notably, the adoption of e-banking services surged from 56% in 2018 to 76%, reflecting a significant shift in customer behavior towards digital banking solutions.
Source: Notes to the financial statement – Techcombank (2018-2020)
The brand plays a significant role in influencing customer behavior when it comes to depositing money in banks, ultimately resulting in higher interest costs Techcombank has been recognized with a prestigious award for its outstanding performance in this area.
In 2018, Techcombank was recognized as the "Best Bank in Vietnam" by Euromoney, and in 2019, it ranked among the Top 3 most profitable private enterprises, alongside VinGroup and Vinamilk This impressive performance not only enhances the bank's reputation but also encourages an increasing number of customers to deposit their money with Techcombank.
Source: Vietnam Profit – Most profitable corporations in Vietnam award 2020
In 2020, we saw a clear change in interest expense for deposits due to the impact of COVID-19 The decrease in deposits means people's income reduces because of negative effects of
COVID-19 In addition, interest rates are not attractive enough for a part of people to transfer their idle money to other channels such as real estate, securities, and gold …
Source: Notes to the financial statement – Techcombank (2018-2020)
In recent years, Techcombank has focused on collecting demand deposits to reduce capital costs and focusing on promoting quantitative solutions to bring benefits to customers and banks In
In 2020, demand deposits (CASA) surged to VND 128 trillion, marking a 60.6% increase from the end of 2019, while term deposits fell to VND 149.4 trillion, a decline of 1.4% This shift reflects the bank's strategy to optimize capital costs, resulting in a CASA ratio of 46.1% at the end of 2020, significantly up from 34.5% in 2019 The impressive CASA ratio highlights the successful transition towards more accessible, low-cost capital sources.
Techcombank's impressive CASA ratio of 46.1% positions it for sustainable long-term growth, serving as a significant competitive advantage In 2020, the bank expanded its digital banking offerings, introducing a diverse array of products, including daily payment solutions and pre-approved credit cards, along with financial management and investment services The surge in retail e-banking customers by 42.9% indicates a swift transition to digital banking, with transaction volume and value experiencing remarkable increases of 108.8% and 84.2% year-over-year, respectively These factors have collectively driven continuous growth, culminating in a record CASA ratio of 46.1% for the year.
Loan services
Banks rely on customer deposits to maintain cash inflow and generate interest income, primarily through loan activities, which are a significant source of revenue compared to other services like deposit management or real estate investments From 2018 to 2020, Techcombank's balance sheets revealed that loans and leases constituted a substantial portion of the bank's total assets, typically ranging from 50% to over 60%, depending on annual financial conditions At the end of 2018, Techcombank reported loans and leases valued at VND 157,554,103 million, representing approximately 49.1% of its total assets, which amounted to VND 320,988,941 million, while other asset sectors accounted for only about 5% to 10%.
Source: Notes to the financial statement – Techcombank (2018-2020)
In 2019, loan activities surged by 70% compared to 2018, but growth slowed to 20.8% by the end of 2020 Despite the deceleration in loan and lease values, their proportion of total assets at Techcombank rose from 59.4% in 2019 to 62.6% in 2020 Interest rates for loans ranged from 0% to 11.29%, depending on the loan type and purpose Interest income from loans increased significantly from VND 15,460,433 million in 2018 to VND 21,590,084 million in 2020, representing a 29.1% rise during this period, highlighting the resilience of the loans and leases sector despite the overall slowdown.
Source: Notes to the financial statement – Techcombank (2018-2020)
From 2018 to 2020, the percentage of loan activities interest income relative to total interest income, before deducting interest income expenses, showed notable fluctuations In 2018, this proportion stood at 72.2%, but decreased by over 5% to 66.8% in 2019 However, it rebounded in 2020, reaching a peak of 74.4%.
Between 2018 and the end of 2019, the total value of customer loans saw a significant increase due to the bank's revised policies regarding long-term individual loans and the introduction of a no-mortgage loan program.
From 2018 to the end of 2019, Techcombank's individual loans surged by 45.4%, driven by a successful new policy However, this growth slowed to just 5% in 2020 due to the COVID-19 pandemic, which severely affected Vietnam's financial landscape and led to rising unemployment rates This economic downturn created a challenging environment for individuals considering bank loans, as the risk of default increased, potentially categorizing loans as group 4 or 5 In contrast, organizations and corporations were better positioned to manage risks associated with loans during the pandemic, allowing them to sustain or enhance their operations despite the financial challenges.
P a g e 23 | 48 a Year-ends annual interest rates : Loans in VND
The National Bank of Vietnam reports that credit institutions have maintained stable deposit and loan interest rates for several months As of September 2019, the VND deposit interest rate for terms up to 12 months remained steady, while rates for deposits exceeding 12 months saw a slight increase.
Currently, the annual interest rate for demand deposits ranges from 1% to 2% For deposits with a maturity of less than one year, the rates vary between 8.8% and 9%, while those exceeding one year offer interest rates between 10% and 13%.
Currently, VND loan interest rates are stable, with rates for popular loans in agriculture, rural development, exports, and small to medium-sized enterprises ranging from 10% to 13% per year In contrast, loans for other production and commercial sectors are offered at interest rates between 12% and 15% per year.
The TCB has raised the short-term capital ratio for its head office's medium and long-term loans from 25.5% to 39.1% over the past year This strategic move reflects the bank's commitment to expanding its medium and long-term credit, which has seen a significant year-to-date growth of 16.9%, in contrast to the more modest 5.1% growth in short-term credit.
Due to the transition to long-term loans, loan interest rates have increased by 43 bps from the previous year
The latest Monthly Report from the National and International Monetary and Financial Situation highlights the stability of interest rates, as noted by the Industry and Trade Information Center of the Ministry of Industry and Trade, despite challenges faced by the banking sector.
The Covid-19 pandemic has significantly impacted both domestic and foreign companies, leading to a severe economic recession In response, major commercial banks in Vietnam, including Techcombank, VietinBank, BIDV, Agribank, ACB, Sacombank, VPBank, TPBank, HDBank, MB, VIB, and SeABank, have implemented substantial loan interest rate reductions of up to 3% Alongside lowering interest rates on existing loans, Techcombank is also offering credit incentives for new loans to support businesses during this challenging time.
This table chart below demonstrates the figure for annual loan interest rate at the end of the year by VND from 2019 to 2020:
Date 31/12/2020 31/12/2019 Interest rates by VND 0,00 - 11,29 % 0,00 – 19,55%
Source: Notes to the financial statement – Techcombank (2019-2020) b Year-ends annual interest rates : Loans in Foreign currencies
To ensure the stability of currencies and currency markets, the State Bank of Vietnam has implemented several regulations regarding deposits and dollar loans over the past two years, with a trend towards strengthening these measures in terms of duration, focus, and interest rates Additionally, stringent management of the gold market is expected to contribute to the stabilization of free market interest rates in 2019.
In 2020, the VND interest rate experienced a steady decline over the course of the year, leading to an increased interest in borrowing dollars to capitalize on favorable interest rate differentials.
The average interest rates for USD transactions are experiencing a slight decline for 1-day, 2-week, 2-month, and 12-month maturities, while rates for other maturities have increased compared to the previous week Specifically, the rates have decreased from 0.04% to 0.34% per year, with conditions also reducing from 0.02% to 0.30%.
Currently, the National Bank has reported that USD loan interest rates range from 4% to 7% per year Specifically, state-owned commercial banks offer short-term rates between 4% and 5% per year, while their medium- and long-term rates are set at 6% to 7% per year.
5 -6% per year, mid-to-long term 6.5-7% per year
Payment services
2.3.1 Net fee and commission income:
Source: Notes to the financial statement – Techcombank (2018-2020)
Fee and commission income from
Fee and commission income 4,188,317 4,853,846 6,048,443 Net fee and commission income/ fee and commission 42.09% 49.21% 48.18%
*This is the newest classified sheet from Techcombank (Net fee = 46.49%) a Reasons for changing in Techcombank:
In its 2020 annual report, Techcombank noted a slight increase in fee and settlement services compared to 2019, attributed to the launch of the "Smart OTP" international remittance platform for corporate clients via F@ST E-BANK, which facilitated over 25,000 online transactions Continuous optimization of this feature led to a 4% increase in transaction volume and a 20% rise in transaction value year-on-year The surge in online transactions and digital engagement was one of the positive outcomes of the COVID-19 pandemic, benefiting businesses that had already initiated their digital transformation.
Techcombank gained a significant competitive edge due to its robust digital infrastructure, leading to a remarkable 39.7% growth in credit and debit card transactions However, in 2020, the net fee slightly declined to 1.03% compared to 2019, as the bank's revenue sources diversified, including settlement and cash services, which account for about 40%, along with securities issuance, bancassurance income, card services, and other financial services.
Between 2018 and 2019, there was a notable shift in fees and services, with 2018 accounting for half of what was seen in 2019 This change was largely due to the introduction of F@ST Mobile in 2014 and the deployment of Techcombank's Smart OTP transaction authentication on February 16, 2019, which utilized advanced security technology This new solution allowed customers to transition from SMS OTP and Token Key to a more private and secure method within the F@ST Mobile app By April 2019, the Smart OTP method had fully replaced the older SMS OTP and Token systems, leading to increased customer confidence and usage for money transfers, bill payments, and phone recharges In contrast, the 2018 version of the app lacked these modern conveniences, relying solely on SMS for verification, which resulted in limited customer engagement and a perception of inconvenience.
From 2018 to 2020, there has been a notable increase in the ratio of fee and commission income derived from settlement and cash services In 2020, settlement services and fee and commission income reached their highest levels compared to the previous years, with 2018 recording the lowest figures of approximately 4,200,000 million VND in fee and commission income and 1,800,000 in settlement services.
From 2018 to 2019, there was a notable increase in net fee and commission income, rising by approximately 7.12% However, this growth was followed by a slight decline of 1.03% between 2019 and 2020, with the percentage decreasing from 49.21% to 48.18%.
Among all of the banks that actively apply technology, Techcombank has been a pioneer in the market to invest in many new features on Internet banking and mobile banking
Thuy Linh, a satisfied Techcombank customer, appreciates the convenience of Internet banking, stating, "I can make transactions anytime, whether it's money transfers, online savings, bill payments, or purchases The clear interface of Techcombank makes it easy to use, making this a fast, convenient, and safe option."
Techcombank is recognized for its innovative solutions, including Mobile Banking, JCB Card, and Mobile POS Additionally, the bank integrates payment features into its online trading platform, offering services like Internet Banking to enhance customer convenience.
P a g e 38 | 48 customers to give a command of automatic payment to perform from phone recharge to pay service bills on time
Customers can conveniently make direct bill payments at any Techcombank transaction post, covering various services such as electricity bills, postpaid and prepaid mobile subscriptions, FPT internet bills, airfare payments, premium payments, and living expenses for Vinhomes residents Alternatively, these transactions can also be completed through the Internet banking service or the Fast mobile app.
Samsung Pay is a cutting-edge mobile payment solution exclusively for Samsung smartphone users, allowing them to easily and securely integrate their Techcombank card information This innovative app enables customers to make quick payments at retail locations worldwide by simply tapping their smartphone on a POS machine, eliminating the need for physical cards.
Other services
Net gain from trading of foreign currencies
Despite the volatility of 2020, GTS Block successfully exceeded its targets, achieving 106% of net revenue from service operations compared to 2019 The conversion transaction volume across countries reached 102%, while foreign exchange transactions soared to 113%, and total LC value increased to 119% This success can be attributed to a robust technology digitization strategy and a comprehensive service approach that addresses customer needs, from simple to complex, while optimizing processes and adhering to Techcombank's existing regulations.
In 2020, the Ministry of Finance recognized the proprietary trading segment of Techcombank's GTS Division, solidifying its leading position in Vietnam's financial market The division excels in government bond trading, derivatives, and Forex, establishing itself as a prominent market maker with an extensive network of domestic and international partners This confidence enables Techcombank to effectively manage foreign exchange transactions, structured deals, and significant derivatives for its clients.
Net gain from trading securities
Income from the sale of securities is recorded in the consolidated income statement upon receipt of the order matching notice from the Save Center Sign Securities for listed securities, or upon finalizing the asset transfer agreement for unlisted stocks This income is calculated based on the difference between the selling price and the cost price of the securities sold.
Income and expenses from Securities brokerage services
Determining net fee income from identified service activities is crucial for sustaining the growth of the Bank's customer base and enhancing the return on assets (ROA) This approach supports the Bank's target growth and cautious balance sheet management In 2020, the Bank experienced a 28.8% increase in operating income from service activities, driven primarily by significant growth in issuance advisory fees, bond distribution agency services, and other bond-related services, resulting in notable shifts in product weight.
Income from Securities insurance guarantee services
Vietnam's life insurance market has significant growth potential, as only 11% of the population had life insurance coverage by the end of 2020 Consequently, income generated from insurance distribution commissions is expected to play an increasingly important role in overall service revenue.
Techcombank's pre-tax profit reached VND 11.5 billion in the first half of this year, driven by higher revenue from its insurance business, as well as income generated from interest and various services.
Techcombank surpassed VietinBank to become the third most profitable bank in the system, with a profit of VND 1,325 billion Meanwhile, VietinBank recorded profit from service activities of VND 1,283 billion
Techcombank's financial statements show that the income from Techcombank's service activities mainly comes from payment and cash services (accounting for nearly half), insurance cooperation services, and securities guarantee services
2.4.3 Income and expenses from consulting services
Insurance services in the mining sector experienced a remarkable 601% growth in new revenue, with premiums rising by 48% during the same timeframe Additionally, Techcom Capital Fund Management Joint Stock Company, a subsidiary of Techcombank established in 2008, aims to deliver investment management and corporate financial advisory services.
The business includes: Consulting on corporate restructuring, Consulting on capital mobilization and Consulting on M&A
In 2020, TCC recorded revenue and profit before tax of TCC reached VND 330 billion and VND
In 2019, total assets surged by 69% to 488 billion VND, while pre-tax profit margins remained robust at 71% Additionally, the company reported a significant increase in revenue, with figures rising by 50% and 26% respectively, leading to a remarkable return on equity (ROE) of 53%.
The implementation of social distancing measures during the COVID-19 pandemic led to a 11.2% decrease in commission fee insurance cooperation, resulting in a total of VND 827 billion in 2020 compared to the same period in the previous year.
As the economy recovers, Techcombank has collaborated with Manulife to enhance its operating model, product offerings, and sales capabilities to better serve customers This partnership has yielded promising initial results, particularly in the Mandarin market, with a notable increase in New Mining Revenue (APE) in the fourth quarter of 2020 The selling rate has significantly improved compared to previous quarters, driven by the digitization of the customer journey and advanced selling tools These efforts position Techcombank to regain its leadership in the insurance sector in the near future.
EVALUATION OF BANKING SERVICES AND RECOMMENDATIONS
The application of technological innovations to banking service
The online financial services business model has yet to demonstrate consistent long-term viability, despite some Internet providers performing well This approach can strain a bank's profits and owner capital due to loan-related losses and inadequate internal controls However, many customers favor financial institutions that provide both online services and accessible physical branches, especially when issues arise with their accounts Techcombank exemplifies success in offering both robust internet services and comprehensive in-person facilities.
Net banks often need to provide additional incentives to attract customers, which can reduce profitability; however, Techcombank has developed a range of highly convenient online services to enhance customer experience By effectively blending net-oriented banking with traditional service offerings, Techcombank stands out in the financial sector.
Techcombank pioneered Vietnam's banking landscape by introducing the country's first core banking system and leading the way in online and mobile banking Throughout the year, the bank enhanced customer experiences with new features for banking, investing, and financial management, including a mobile banking app that seamlessly integrates with all utility providers, making bill payments effortless Additionally, Techcombank's commitment to scalable, resilient, and high-availability infrastructure ensures the delivery of exceptional service levels, reinforcing its position as a top-tier 24/7 bank.
In 2019, customer needs continued to shape priorities, as Techcombank sought to ease their borrowing journey by further digitalising card services and modernising key workflows
Techcombank's industry-leading digital platforms empower customers to bank anytime and anywhere, while significant investments in robust infrastructure guarantee their reliability and accessibility.
Techcombank added many exciting new features and capabilities to both the retail and commercial digital platforms, so customers could do more banking and investing, and improve their financial management
In 2019, Techcombank enhanced its cyber security measures to address increasing daily threats, ensuring customers can trust the bank with their finances while safeguarding their privacy The bank invested heavily in recruiting top talent, advanced cyber security technology, and comprehensive training programs to bolster its defenses.
Techcombank ensures that every customer’s data and transactions are safeguarded, with international-standard security methods and protocols
=> Over 1 million new customers; A 151% surge in use for the convenient and effective digital platforms (including ATMs, mobile banking, internet banking), and Techcombank’s serviced transaction value rose by 143% YoY
Customer focused improvements to the bank’s UX/UI, making things even more convenient
New digital banking features including integration with Mortgage+, I-bonds, insurance products and card system
Added integrated bill pay for over 40 major utilities and other service provider companies
Bolstered customer security – Techcombank is the first bank in Vietnam to roll out Smart OTP for all online transactions
Continuing to build electronic transaction solutions based on maximizing customer experience
=> Signed up over 1 million new customers, growing e-banking transaction value by 191% YoY Currently, 85% of customer activity is purely digital
‣ Rolling out the eKYC solution for better access to core customer segments
To enhance the experience of core affluent customers, new service features have been introduced, including the innovative Bao Loc and transfer certificates of deposit available on F@ST Mobile These offerings cater to investment needs and asset growth while also providing non-financial services such as airline ticket and hotel bookings, addressing the rising demands of customers.
Techcombank is enhancing the digitalization of home loans by streamlining the approval process, reducing customer wait times to just 1.6 days Additionally, the bank has cut online credit processing times by 30%, bringing it down to 335 minutes compared to traditional methods.
Customers using bill payment services went from 19% in 2019 to 54% in 2020 by connecting to more service providers and engineering a better bill payment experience with faster and automatic payments
F@ST Mobile has significantly boosted its revenue by launching preapproved credit payment cards, which has played a key role in the impressive growth of CASA, now totaling VND 76.1 trillion This initiative has also lowered customer service costs at physical counters by transitioning card support services online, resulting in savings of over VND 67 billion in SMS expenses.
For customers: Techcombank has a history of being a first adapter of technology, providing superior customer experience Retail e-banking transactions volume rose 108.8% from 2019
2020 added over one million new customers, thanks to Techcombank's ongoing investment in digital platforms, digitalizing E2E customer journeys, improving underwriting capabilities and risk management
Techcombank prioritizes technology investments to ensure system stability and resilience, enabling customers to bank anytime and anywhere By leveraging ecosystem partners, the bank aims to enhance performance, reduce costs, and accelerate the introduction of new products and services, facilitating the rapid release of customized solutions for its clients.
In the wake of COVID-19 accelerating digital transformation, cybersecurity has emerged as a critical focus for all digital operations To enhance customer security and privacy, the bank has made substantial investments in hiring leading security experts and adopting international security standards and protocols.
Risk Management & Compliance with regulations
Techcombank has developed a comprehensive understanding of its customers and their ecosystems, allowing the bank to tailor its credit policies and business strategies to specific customer segments By implementing advanced risk assessment models throughout its end-to-end credit process, Techcombank has successfully reduced turnaround times and enhanced the overall customer experience, delivering optimal financial solutions to meet diverse needs.
Techcombank has measured and assessed market risks according to Basel II requirements by:
• Computing value at risk (VaR) and expected shortfall for portfolios for the trading book
• Conducting backtesting of VaR for each trading portfolio
• Simultaneously launching a project to validate models so functional and business units can make well-informed decisions
In accordance with SBV requirements, the bank's liquidity risk management regulations and processes align with Circular 13/2018/TT-NHNN on corporate governance The updated governance structure and model, along with the associated policies and regulations, are designed to effectively identify, measure, monitor, and report risk triggers, ensuring compliance with SBV's banking regulations regarding liquidity and solvency ratios.
Safeguarding the Bank, its shareholders, and customers from operational losses is a top priority The Operational Risk Management sub-committee plays a crucial role in identifying and assessing operational risks, ensuring they are addressed swiftly and consistently in line with the Bank’s risk management policy and regulatory standards.
Additionally, Techcombank has been transferring operational risks via insurance Techcombank’s insurance needs are managed by the Operational Risk Insurance Management team
In 2020, Vietnam's economy faced challenges from the global recession and international bankruptcies, severely affecting Techcombank's objectives due to halted flights and a downturn in tourism and services To navigate these difficulties, Techcombank adopted a range of technology-driven risk management solutions and initiatives, which played a crucial role in fostering growth and resilience during this period.
Internal capital adequacy assessment process (ICAAP)
In 2020, Techcombank successfully implemented the Internal Capital Adequacy Assessment Process (ICAAP) in accordance with Circular 13/2018/TTNHNN, following the early application of the CAR standard approved by the State Bank of Vietnam in 2019 under Circular 41/2016/TTNHNN This achievement marked the completion of all three pillars of Basel II for the bank.
The risk data aggregations and analytics platform (RDAAP)
It continues to improve both the bank’s risk management models and risk reporting standards
Techcombank is dedicated to offering tailored financial products that align with the diverse business cycles and capital requirements of its customers By developing specialized financial solution packages for different customer segments, the bank enhances efficiency and reduces processing times Additionally, Techcombank has evaluated the effects of the pandemic on its services and customer needs.
P a g e 47 | 48 customers and responded by reducing interest rates and restructuring loan repayment schedules
In the retail sector, the implementation of digital analytics platforms and enhanced decision-making in retail credit risk portfolio management, along with the synchronization of personal customer data across digital channels, has enabled banks to effectively manage the challenges posed by the COVID-19 pandemic.
Business credit decision engine (BCDE) – enabling the commercial digital journey
BCDE aims to fully digitize and streamline corporate loan origination, focusing on credit risk decisions as its core element This initiative will significantly drive non-retail growth, offering high scalability and the ability to capture and centralize customer data As a result, BCDE will enhance commercial lending decisions and improve operational efficiency.