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Techcombank is leading the digital transformation of the banking industry in Vietnam

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On April 22nd, Techcombank held its 2023 Annual General Meeting of Shareholders (AGM). At the press briefing afterward, CEO Jens Lottner showed his confidence in the bank’s ability to achieve its 2025 targets and remained optimistic about the underlying attractiveness of the Vietnamese economy despite recent market volatility.

According to CEO Lottner, Vietnam’s economy recovered strongly in 2022, but with the 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, while volatility in the bond and real estate markets, where Techcombank has a strong presence, has also had particular impact on Techcombank’s recent performance.

Despite these temporary headwinds, 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 the three main pillars: Data excellence – Digital excellence – People excellence. According to Lottner, the Bank’s digital transformation accelerated significantly in 2022, with investments in digital technologies positioning the bank well for growth and helping to accelerate customer acquisition.

In 2022, Techcombank successfully deployed important digital platforms for its retail and business customers, including the Techcombank Mobile and Techcombank Business apps. Today, around 90% of Techcombank’s 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.

According to Lottner, Techcombank is investing in digitalisation to create seamless customer experiences, online and offline. This process is complex, requires investment in underlying capabilities and technologies, and the integration of different systems and platforms across the bank.

Digitalisation of the bank’s operations has taken time and investment, but Lottner believes Techcombank 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,” said Lottner.

Techcombank is employing technologies, including Artificial Intelligence, to create human-like interactions with customers over digital platforms, analyse data to understand the needs of individual customers, and offer each customer the right products and services throughout their financial lives.

“Through the application of technology our acquisition cost per customer is coming down. But what we can deliver to our customers is going up,” explained Lottner. In the past Techcombank added around one million new customer per year, but Lottner says the bank is aiming to add two to three million new customers in 2023, primarily through digital channels.

Focus on retail credit

According to Lottner, Techcombank plans to allocate over time more of its credit quota to retail customers and SMEs in an effort to diversify its credit book. Simultaneously, this will reduce exposure of the bank’s corporate lending to the real estate sector, improving risk diversification. By increasing lending to retail and SMEs, Techcombank aims to broaden its exposure to growing sectors within Vietnam’s economy, such as fast-moving consumer goods, auto, utilities and others.

Furthermore, 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. This means that the overall risk adjusted return from retail and SME customers can actually be higher than from corporate clients.

However, Lottner noted that Techcombank still needed 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 SME’s is expected to resume in the second half of the year as demand returns.

On track to meet CASA target

Techcombank has a CASA target of 55% by 2025, but in 2022 its CASA ratio was already 37%. Increasing the CASA ratio is a top priority for the bank and, according to 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, Lottner 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 Lottner explained that to cater for the expected rise in demand for bonds, stocks, and real estate among affluent customers, it is 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, real estate, and we understand what our affluent customers are looking for.” 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, Lottner explained, as “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 the 55% CASA ratio if we continue to follow our strategy,” said Lottner.

Investing for the future

The performance of Techcombank’s business has enabled it to invest in digital transformation ahead of most other banks in Vietnam, said Lottner. In recent years the bank has increased investment in line with growth in total operating income. However, in 2022 growth in TOI slowed due to market headwinds, yet Techcombank maintained its investment path to continue its digital transformation and transition to the cloud.

Lottner believes 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 terms see a slowdown of 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.

Lottner believes Techcombank is still leading the digital transformation of the banking industry in Vietnam and evidence would suggest he is right.

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