Despite headwinds, Techcombank remains confident about hitting ambitious 2025 targets

Techcombank held its 2023 Annual General Meeting of Shareholders (AGM) on April 22.

At the press briefing afterwards, CEO Jens Lottner showed his confidence in the bank’s ability to achieve its 2025 targets and remained optimistic about the underlying attractiveness of Vietnam’s economy despite recent market volatility.

According to Mr. Lottner, Vietnam’s economy recovered strongly in 2022, but with higher borrowing costs, tighter credit, and slower GDP growth in the first quarter of 2023 the economy still faced significant challenges. For the banking sector in particular, the high interest rate environment and tight liquidity have continued to push up the cost of funds, compressing the net interest margin. Volatility in the bond and real estate markets, where Techcombank has a strong presence, has also had a particular impact on Techcombank’s recent performance.

Despite these temporary headwinds, Mr. Lottner explained that Techcombank’s strategy continues to hold in the third year of its five-year transformation journey and its medium-term objectives and targets remain unchanged.

Techcombank is transforming around three main pillars: Data excellence, Digital excellence, and People excellence. Its digital transformation accelerated significantly in 2022, with investments in digital technologies positioning the bank well for growth and helping accelerate customer acquisition.

It successfully deployed important digital platforms for its retail and business customers last year, including the Techcombank Mobile and Techcombank Business apps. Today, around 90 per cent of customer transactions are conducted on the bank’s digital platforms and its apps are among the highest rated in the market. Even more importantly, customer engagement on these platforms is very high compared to local, regional, and even global banking peers.

Techcombank, he went on, is investing in digitalization to create seamless customer experiences, both online and offline. This process is complex and requires investment in underlying capabilities and technologies and the integration of different systems and platforms across the bank.

The digitalization of the bank’s operations has taken time and investment, but Mr. Lottner believes it is now at an inflection point and ready to accelerate. “I believe that the technology we have in place and are in the process of connecting now puts us around two or three years ahead of anyone else in the market,” he said.

Techcombank is employing technologies, including artificial intelligence, to create human-like interactions with customers over digital platforms, analyzing data to understand the needs of individual customers and offering each the right products and services throughout their financial lives.

“Through the application of technology, our acquisition cost per customer is coming down,” Mr. Lottner continued. “But what we can deliver to our customers is going up.” In the past, Techcombank added around a million new customer each year, but he said it is aiming to add 2 or 3 million new customers in 2023, primarily through digital channels.

Focus on retail credit

Techcombank plans to allocate more of its credit quota to retail customers and small and medium-sized enterprises (SMEs) over time, in an effort to diversify its credit book. This will also reduce its exposure to the real estate sector, improving risk diversification. By increasing lending to retail and SME customers, Techcombank aims to broaden its exposure to growing sectors within Vietnam’s economy, such as fast-moving consumer goods (FMCG), autos, utilities, and others.

Furthermore, Mr. Lottner explained that when the bank allocates credit it looks at the return on a risk-adjusted basis and across the full customer relationship. This means that even if the return is lower from lending to a retail or SME customer, the bank hopes to deepen and expand its relationship to include other products, like credit cards. The overall risk-adjusted return from retail and SME customers can actually be higher than from corporate clients.

However, he noted that Techcombank still needs to be flexible and adjust this strategy depending on market dynamics. In the first half of 2023, Techcombank is seeing a lot of activity on the corporate lending side due to demand among its business customers for short-term credit. However, the strategic shift of Techcombank’s credit book to retail and SMEs is expected to resume in the second half of the year as demand returns.

On track to meet CASA target

Techcombank has a CASA (current and savings account) target of 55 per cent by 2025 but in 2022 it reported a CASA ratio of 37 per cent. Increasing the CASA ratio is a top priority for the bank and, according to Mr. Lottner, it is still on track to reach its CASA target in line with its strategic plan.

Despite recent volatility in the real estate and bond markets, he remains optimistic about the underlying attractiveness of these markets. This means that as customer confidence returns and interest rates fall, appetite among affluent customers for bonds, stocks, and real estate will rise. The need to transact and move money in and out of assets will lead to a shift from term deposit accounts back into CASA.

Techcombank is already among Vietnam’s leading transaction banks, but Mr. Lottner explained that to cater to the expected rise in demand for bonds, stocks, and real estate among affluent customers, it has been a creating a new and holistic wealth management proposition. “As the market is coming back, we believe there is a need for good wealth products and bonds and real estate, and we understand what our affluent customers are looking for,” he said. Today, Techcombank is working hard to strengthen its wealth proposition through better products, more experienced relationship managers and advisory processes to ensure its products are ideally suited to the individual risk-return expectations of every customer.

For SME customers, Techcombank is also strengthening its offerings in the area of transaction banking while simultaneously enhancing its credit underwriting capabilities. CASA and credit go hand in hand, Mr. Lottner explained, and “people who would take credit from us have much higher CASA balances. So, as we start deploying credit into SMEs, CASA should go up.”

Techcombank is also introducing new initiatives to drive the acquisition of main operating account relationships. On the corporate banking side, it plans to launch new cash and liquidity management and treasury management services. For merchants, the bank is preparing to launch a series of new offerings in the coming months while it is also releasing a host of new digital features and functionalities to drive online retail customer engagement, as well as new rewards and loyalty platforms.

“Are we still on track? I’m actually very confident we should be able to go to a 55 per cent CASA ratio if we continue to follow our strategy,” Mr. Lottner said.

Investing for the future

Techcombank’s business performance has enabled it to invest in digital transformation ahead of most other banks in Vietnam, according to Mr. Lottner. It has increased investment in recent years in line with growth in total operating income (TOI). However, in 2022, growth in TOI slowed due to market headwinds, but it nonetheless maintained its investment path to continue its digital transformation and transition to the cloud.

He believes that all banks in Vietnam will need to invest significantly in digital technologies if they are to meet the evolving needs of customers and keep pace with the industry. Techcombank has already made much of this investment and hence should in the medium term see a slowdown in its additional investments into data and technology while competitors would need to embark on a similar investment cycle. Hence, while this investment may cause a temporary rise in Techcombank’s cost-to-income ratio, the investment made today will drive future growth and should drive the cost-to-income ratio down in the future while other banks might see exactly the reverse.

Mr. Lottner believes Techcombank is still leading the digital transformation of the banking industry in Vietnam, and the evidence suggests he is right.