Jens Lottner, CEO of Techcombank, talks about the strategy of Techcombank to cherish its big ambitions despite the uncertain economic environment.
With the ambition of reaching US$20-billion capitalization, 55% CASA, and becoming one of the top 10 banks in the region, which is quite challenging amid this uncertain economic environment, what will be the decisive factors to realize that ambition?
We are confident of reaching our operational targets. In terms of CASA, we are now at 40.5%. There are certain elements like auto-earning, which people are using that will help to increase CASA. Our NFI/TOI is at 26%, and we want it to be at 30%. We also should be able to come back to 20% return on equity. We are on track to achieve the total profit target for the 2020-2025 period. Even as there was a slowdown in 2023, we believe that in 2024 and 2025, our diversifying strategy will deliver and we will reach our set milestones.
Regarding the US$20-billion market capitalization, it revolves around what’s the P/B or P/E or other multiples you look at. Over the last 5 years, we were twice at the 2.5 multiple of price to book ratio. Ultimately, the market cap is a little outside of our control. There needs to be more comfort around Vietnam by foreign investors. So I think some re-rating needs to be done. Hopefully, more capital streams will come in Q3 2024. I’m not so much concerned about the US$20-billion market cap target. This is our aspiration, and once we get that, it will put us in the top banks of the region. If you look at our return on assets, digital usage and some other growth numbers, these are not just outstanding at the ASEAN level but also at the Asia level. We do not necessarily have to become the largest bank, we want to be the right combination of profit growth and capital efficiency.
One area we are behind is diversifying the credit book. 2023 was a challenging year for a lot of customers. From our perspective, it was much safer to lend to large corporates than the retail or SME space where there was not so much demand. This year, we will try to accelerate our exposure to retail and SME customers again. Last year, on the corporate side, we increased our non-RECOM book by roughly 60%. So, we actually started diversifying away into new sectors of the economy. It would take some time, but we hope we can accelerate that.
Techcombank is entering the fourth year of your five-year transformation strategy. Will there be any new initiatives to differentiate yourself from the past three years?
We have set out the five-year transformation strategy, and we continue on that trajectory. We have invested intensively in our digital, data and talent, and all of that can now make a difference and start to bear fruit creating value for our customers and for the bank. We have scaled our business with the same number of people and we are able to run certain parts of the business at a CIR around 10 percentage points lower than previously so we will continue to use these capabilities going forward.
On the technology side, we continue to upgrade our core banking. We have already shifted around 30% of our workload onto the cloud, and we will add another 10 to 15% by the middle of the year. The strategic pillars, which we have invested in order to make sure that we can go to SMEs and other areas, are still the same.
This is the first year TCB pays dividends after a decade. What impacts would it have on the sentiment of your shareholders?
I believe shareholders appreciate us sharing dividends. A set of shareholders might be asking: ‘Do you not have enough growth opportunities anymore? Therefore, you’re handing back capital.’ We can do both growth and dividend payment. We can maintain a 20% growth trajectory, and 15% CAR ratio, while paying the dividends. And we will do this in a sustainable manner.
As TCB plans to have a strategic investor into the cap table, what values would that bring to the bank? Why now?
Warburg Pincus has been a long-term investor and one of our biggest shareholders. But they will need to exit at some point in time. If this share package of 8-9% becomes available, combining with our remaining foreign ownership limit, it could potentially become interesting for strategic investors. Warburg Pincus invested in our IPO and added tremendous value pre- and post-IPO, but we are a very different bank now, and we need to evaluate who can add real value at this point in time. We are open to strategic investor or investors which have a long-term mindset as we build the franchise, and can add value beyond just capital in different forms. This could be one investor, but could also be a couple of highly respected institutional investors joining with stakes between 1% to 5%, which would continue to offer advice how to improve our business and operating models as well as our ESG profile.
TCB just announced new members to the BoD, with a top leader coming from Bank of Central Asia, Indonesia. What values will they bring to the table?
As we welcome new people to the board, we look for their additional experience. Our new board members bring with them a very deep understanding of banking, especially in terms of risks and wealth management, which is a very important area for us. In the case of Mr. Eugene K. Galbraith, there’s a lot for us to learn from him to create a great franchise building around SME customers and payments. We hope that over the next couple of years, they will help us to continue on the journey we are on.
Known as the King of CASA, recently TCB has lost the title to MBank. What is the bank’s direction to regain this position?
On the CASA side, it’s a tight race with MBank. We’re seeing a lot of CASA inflow but at the same time a lot of outflow because interest rates are low. We’re still working a lot on payments and auto-earning, which behave like CASA. We should see a steady increase in CASA. I think MBank is targeting a lot of mass segment customers, adding up small amounts. We also go for new-to-bank acquisitions, but in a different segment more mass affluent and affluent. We have an aggressive CASA plan. We’re going into the affluent and mass affluent customers but also SMEs and merchants. A lot of our CASA is also coming from corporate customers, an area we can make a lot of improvement.
