as well as improving key transaction processes such as issuing Letters of Credit, Letters of Guarantee and loan disbursement, making banking credit services simpler and more efficient for SME customers. In 2019, Techcombank had more than 35,000 credit and non-credit SME customers compared to 29,000 in the 2016-2017 period, with outstanding SME loans increasing significantly, averaging 29.06% in the 2016-2019 period.
For the large corporate customer group, mainly accessing medium and long-term loans, from 2015 to 2019, Techcombank supported the long-term credit needs of large corporate customers through consulting on the issuance of corporate bonds, thereby reducing the proportion of outstanding loans to large corporate customers to about 30% while still ensuring to meet the long-term capital needs of large corporate customers. At the same time, by reducing the proportion of medium and long-term loans to large corporate customers, Techcombank maintained good liquidity with the ratio of short-term capital for medium and long-term loans at 30.5%, much lower than the ceiling of 40% of the State Bank.
Regarding corporate bond outstanding balance, the contribution ratio of corporate bonds to Techcombank's total credit outstanding balance increased sharply in the 3 years 2017 - 2019, the average ratio for the whole period reached 13.35%.
2.1.4.2 Criteria reflecting safe use of capital:
Overdue debt ratio: Techcombank's NQH ratio was maintained at a stable level during the period 2014 - 2019, in which debt requiring attention was controlled at below 2.5%.
Table 2.4: Techcombank's overdue debt ratio in the period 2014 - 2019
Unit: billion VND; %
Target
2015 | 2016 | 2017 | 2018 | 2019 | ||||||
ST | % | ST | % | ST | % | ST | % | ST | % | |
Qualified Debt | 108,012 | 96.76 | 138,204 | 96.91 | 155,932 | 96.94 | 154,548 | 96.63 | 225,601 | 97.75 |
Debts to Watch Out For | 1,751 | 1.57 | 2,166 | 1.52 | 2,333 | 1.45 | 2,588 | 1.62 | 2.123 | 0.92 |
Substandard debt | 309 | 0.28 | 397 | 0.28 | 575 | 0.36 | 237 | 0.15 | 218 | 0.09 |
Doubtful debt | 537 | 0.48 | 475 | 0.33 | 456 | 0.28 | 863 | 0.54 | 305 | 0.13 |
Bad Debt | 1,016 | 0.91 | 1,375 | 0.96 | 1,553 | 0.97 | 1.03 | 1.06 | 2,554 | 1.11 |
VAMC bonds | 0 | 0 | 2,922 | 0 | 0 | 0 | 0 | 0 | 0 | |
Total | 112,200 | 100 | 142,600 | 100 | 160,849 | 100 | 159,939 | 100 | 230,802 | 100 |
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Source:[29] In 2017, after Vietcombank, Techcombank was the second bank to complete provisioning for VAMC bonds, using all provisions to handle and off-balance sheet VAMC bonds issued in 2016. In 2017, Techcombank set aside VND2,922 billion for VAMC bonds, and used VND3,031 billion of accumulated provisions to handle and off-balance sheet VAMC bonds. This significantly improved Techcombank's asset quality.
Bad debt ratio
During the period 2014 - 2019, Techcombank's bad debt ratio decreased significantly, maintaining at <3%. In 2014, Techcombank's bad debt ratio stopped at 2.38%, lower than the 3.65% in 2013. This result was achieved because the bank applied a prudent lending policy and focused on improving credit quality according to international standards. Continuing with that strategy, in 2015, Techcombank's growth was associated with a focus on credit quality and customer expansion based on target segments, especially the segment of customers with high incomes and large enterprises with the need to use diverse financial solutions. On the other hand, thanks to strict and effective risk management measures to control existing bad debts as well as prevent new bad debts, the bad debt ratio at the end of 2015 decreased to 1.67% compared to 2.38% at the end of 2014.
Table 2.5: Techcombank's bad debt ratio in the period 2014 - 2019
Unit: %
Target
2014 | 2015 | 2016 | 2017 | 2018 | 2019 | |
Bad debt ratio | 2.38 | 1.67 | 1.57 | 1.61 | 1.75 | 1.33 |
Increase/decrease | - 1.27 | - 0.1 | - 0.04 | - 0.14 | - 0.42 |
(Source:[20]) The period 2016 - 2017 marked a rapid growth in outstanding loans, however, Techcombank still controlled bad debts well, the bad debt ratio decreased from 1.67% in 2015 to 1.57% in 2016. The Bank's provision ratio on bad debt increased in 2016 and reached 66.6% - the higher this ratio, the more the losses that the Bank has to bear due to RRTD are minimized, the Bank's operations and profits are also more secure. Entering 2017, Techcombank AMC - Debt Management and Asset Exploitation Company - continued to focus on improving the quality of debt collection staff, optimizing support tools to improve the efficiency of debt collection activities, and handling collateral for Techcombank. This has actively supported Techcombank in handling asset foreclosures, recovering bad debts and debts sold to other businesses. Specifically, the debt recovery results in 2017 reached more than 2,600 billion VND, equal to 85% of the plan.
75% higher than in 2016.
During the period 2018 - 2019, Techcombank's bad debt ratio tended to increase in the first three quarters of the year but had positive changes at the end of each year due to the bank's efforts in controlling bad debt. In 2018, bad debt was controlled from the high bad debt ratio in the first three quarters of the year (substandard debt: VND 425,663 million; doubtful debt: VND 948,730 million; debt with the possibility of losing capital:
2,026,823 million VND, up 33% compared to 2017, of which doubtful debt doubled and debt with the possibility of losing capital increased by 31%) to the bad debt ratio decreased sharply in the last quarter, ending 2018 at 1.75%, achieving the plan set at the beginning of the year. The bank also completed the collection and handling of overdue debts that had been sold to VAMC to pay off VAMC special bonds ahead of schedule.
In the first 6 months of 2019, Techcombank's total bad debt increased sharply at
3,301 billion VND, an increase of 498 billion VND compared to 2018. Of which, the bad debt (group 5 debt) alone accounted for 2,274 billion VND, an increase of 570 billion VND compared to the beginning of the year; substandard debt (group 3 debt) was at 673 billion VND; and doubtful debt (group 4 debt) was 354.3 billion VND. The ratio of bad debt to customer loans was 1.8%. However, in the second half of 2019, due to efforts in bad debt recovery, Techcombank wrote off about 2,200 billion VND of bad debt, the total bad debt as of December 31, 2019 was 3,077 billion VND, equivalent to 1.33% of total outstanding loans.
Loan to Deposit Ratio (LDR)
In general, Techcombank's loan/deposit ratio remained at a safe level compared to the State Bank's prescribed limit during the 2014 - 2019 period and was lower than the average of the joint stock commercial bank sector.
Chart 2.5: Techcombank's LDR ratio in the period 2014 - 2019
Unit: %
200.00%
77.65%
81.04%
83.80%
84.65%
84.61%
150.00%
100.00%
50.00%
LDR ratio of commercial banks
Techcombank LDR Ratio
70.0%
71.80%
76.60%
65.50%
76.3%
0.00%
2015 2016 2017 2018 2019*
Source:[29]
In the period 2018 - 2019, Techcombank's LDR ratio was 65.5% and 76.3%, much lower than the average of commercial banks of 84.65% and 84.61%. The reason why Techcombank's LDR is low compared to the average, although Techcombank is one of the banks with the highest profit margin in the system, is because a large amount of Techcombank's outstanding credit is not in the form of customer loans but in the form of corporate bonds - with RR even higher than customer loans but higher profit margins (Total loans used to calculate the LDR ratio according to Circular 36/2014/TT-NHNN and Circular 22/2019/TT-NHNN do not mention securities, including corporate bonds). If calculated
Techcombank's corporate bonds, LDR in 2019 reached 85%. Therefore, Techcombank needs to calculate the LDR ratio including corporate bonds at a reasonable level, on the one hand ensuring profitability, on the other hand, limiting liquidity risk, protecting the bank from the risk of sudden deposit withdrawal.
Ratio of short-term capital for medium and long-term loans:
Chart 2.6: Short-term capital for medium and long-term loans at Techcombank 2014 - 2019
Unit: %
100.00%
80.00%
60.00%
40.00%
20.00%
0.00%
31%
34.50%
30.65%
28.40%
27.30%
45.91%
41.50%
43%
31.50%
38.40%
Short-term capital lending ratio
medium and long term for the entire banking industry
Short-term capital lending ratio
Medium and long term Techcombank
2015
2016
2017
2018
2019
(Source:[29])
In general, although Techcombank's short-term capital ratio for medium and long-term loans is always within the limits allowed by the State Bank in each period, this ratio is always significantly higher than the industry average ratio in the period 2014 - 2019. On the other hand, Techcombank's capital mobilization growth rate in the period 2014 - 2019 is lower than the credit growth rate, which poses a potential liquidity risk for the Bank. From 2015 - 2019, the State Bank has adjusted the regulations on the maximum short-term capital ratio for medium and long-term loans 3 times from 60%, then reduced to 45% and 40%. In 2019, the State Bank of Vietnam issued Circular 22/2019/TT-NHNN stipulating a roadmap to gradually reduce the maximum ratio of short-term capital used for medium and long-term loans in 3 stages: January 1, 2020 - September 30, 2020 is 40%; October 1, 2020 - September 30, 2021 is 37%; October 1, 2021 - September 30, 2022
is 34%; from October 1, 2022 it is 30%. Thus, with the high ratio of short-term capital for medium and long-term loans, Techcombank is facing challenges in having enough capital to serve lending needs, while still ensuring liquidity.
Minimum capital adequacy ratio
With Techcombank's minimum capital adequacy ratio always at a high level compared to the regulations of the State Bank of Vietnam, Techcombank is one of the banks with the highest asset quality in the system. Techcombank has built and effectively implemented an internal inspection and control system, contributing to preventing and promptly handling existing problems that arise. Banking performance indicators are regularly controlled, so no unexpected risks arise.
In any significant way, credit balances are controlled within the bank's risk appetite and risk tolerance. At the same time, Techcombank always strengthens risk culture and develops human resources.
However, Techcombank's CAR ratio tended to decrease continuously in the period of 2014 - 2017 although during this period, to maintain the CAR ratio, Techcombank applied a policy of not paying dividends for 5 consecutive years, and retained all after-tax profit until the end of 2016 for investment and growth. The main reason for the decline in the CAR ratio in the period of 2014 - 2017 was due to the increase in Techcombank's risk-converted assets while the bank encountered difficulties in increasing capital.
Table 2.6: Techcombank's minimum capital adequacy ratio for the period 2014 - 2019
Unit: %
Target
2014 | 2015 | 2016 | 2017 | 2018 | 2019 | |
CAR | 15.65 | 14.7 | 13.12 | 9.4 * | 14.6 * | 15.5 * |
Increase/decrease | -0.95 | -1.58 | -3.72 | 5.2 | 0.9 |
*Calculated according to the method of calculating the minimum capital safety ratio of TT41/2016/TT-NHNN
(Source:[29])
The period 2018 - 2019 witnessed a strong wave of capital increase of banks in the joint stock sector, and Techcombank was no exception when in 2018 the bank's charter capital increased 3 times to 35,000 billion VND, which contributed greatly to the increase in Techcombank's capital adequacy ratio during this period. In 2018, Techcombank's capital adequacy ratio (CAR) at the end of the year reached 14.6%, higher than the average minimum capital adequacy ratio CAR of the joint stock commercial bank sector of 11.24%, significantly higher than 5.2% compared to 2017. This reflects Techcombank's level of prudence in managing credit growth. In 2019, Techcombank was officially granted the decision by the State Bank of Vietnam to apply Circular 41/2016/TT-NHNN (Basel II standard method) from July 1, 2019. The calculation of CAR ratio under Circular 41/2016 is required to be more stringent, adding operational risk and market risk, the minimum CAR requirement under this Circular is 9%. Applying Circular 41/2016/TT-NHNN, Techcombank's CAR ratio increased by 0.9% to 15.5%.
2.1.4.3. Group of criteria reflecting profitability
Net interest income:
Ranked second among commercial banks with the largest net interest income among Vietnamese joint stock commercial banks (after Vietcombank), Techcombank's net interest income grew strongly and was relatively stable in the period 2014 - 2019. Average credit growth rate
The period 2014 - 2019 reached 19.64%, helping to increase income and profit from lending activities. At the same time, disciplined cost management and a strong increase in debt recovery were handled by risk provisions in previous years.
Table 2.7: Techcombank's net interest income in the period 2014 - 2019
Unit: billion VND, %
Target
2014 | 2015 | 2016 | 2017 | 2018 | 2019 | |
Net interest income (billion VND) | 5,871 | 7,214 | 8,142 | 8,930 | 11,390 | 14,258 |
Increase/decrease (billion VND) | - | 1,343 | 928 | 788 | 2,460 | 2,868 |
Increase/decrease (%) | - | 22.88 | 12.86 | 9.68 | 27.55 | 25.18 |
NIM (%) | 3.92 | 4.37 | 4.06 | 3.90 | 3.7 | 4.20 |
Source: [29] Considering the contribution of net interest income to Techcombank's total operating income, interest income always accounts for the highest proportion, specifically, net interest income in the period 2014 - 2019 accounted for an average of 69% of total bank income. This further affirms the importance of QTRRTD activities in improving efficiency.
operations, ensuring sustainable growth for Techcombank.
In terms of net interest income ratio, Techcombank is one of the banks with high net interest income ratio (NIM) in the system. However, in the period 2014 - 2019, the NIM ratio fluctuated significantly. In the period of 2015 - 2018, due to the process of converting the loan portfolio from medium and long-term loans to short-term loans, which put pressure on reducing the net interest income margin, the net interest income ratio tended to decrease, from 4.37% in 2015 to 3.9% in 2017. However, in 2019, Techcombank promoted the mobilization of non-term CASA deposits (non-term deposits of Techcombank's personal customer segment increased by 219% from 2016 - 2019, reaching 58.6 trillion VND), contributing to keeping the mobilization cost low, helping Techcombank improve NIM at 4.3%, higher than the average level of the banking industry at 3.44% and approximately the world average of 4.5%.
Net profit before tax (PBT) and Profit after tax:
Techcombank's PBT has always maintained high and sustainable growth throughout the 2014 - 2019 period with an average growth rate of 59.19% for the whole period.
In 2015, Techcombank's total operating income increased, cost management was given special attention, cutting unnecessary costs, and improving costs to increase revenue as well as productivity in the bank. Techcombank continued to focus on QTRRTD with great efforts in managing bad debts. The above factors contributed to the growth of pre-tax profit in 2015 by more than 43%.
compared to 2014. 2016 marked Techcombank's remarkable growth in profit after tax, up 96.2% compared to 2015, at VND 3,997 billion, reaching 113% of the set plan.
Table 2.8: Net profit before tax and profit after tax of Techcombank in the period 2014 - 2019
Unit: billion VND; %
Target
2014 | 2015 | 2016 | 2017 | 2018 | 2019 | |
PBT (billion VND) | 1,417 | 2,037 | 3,997 | 8,036 | 10,661 | 12,838 |
Increase/decrease (%) | 61.4 | 43.75 | 96.22 | 101.08 | 32.66 | 20 |
Profit after tax (billion VND) | 1,082 | 1,529 | 3,149 | 6,446 | 8,474 | 10,270 |
Increase/decrease (%) | 65.19 | 41.31 | 105.95 | 104.7 | 31.46 | 21.19 |
Source: [29]
In the period of 2018 - 2019, the profitability ratio continued to improve strongly, with pre-tax profit exceeding VND 10,000 billion, pre-tax profit in 2018 reaching VND 10,661 billion, exceeding the plan by 6.61%, up 32.67% compared to 2017. Techcombank's business results in 2019 continued to have many highlights with a profit growth rate of 20%.
Techcombank's profit after tax has grown continuously during the period 2014 - 2019, maintaining its position as the top profit earner in the Vietnamese banking system. In 2018, along with Vietnam's economic growth, Techcombank recorded record business results with consolidated profit before tax reaching VND 8,474 billion, up 31.46% compared to 2017. This result was achieved from growth in all business segments of the bank, with a credit growth rate of 20% while asset quality was ensured. Lower credit costs along with good overall cost management also contributed to this profit. In 2019, profit after tax continued to be stable at a growth rate of 21.19%.
Return on assets (ROA) and return on equity (ROE)
In general, the period 2014 - 2019 marked a strong change for Techcombank in the ROA and ROE rankings of the banking industry. If in 2014 - 2015, Techcombank's ROA ratio was only 0.64%; 0.82% lower than the industry average of 0.7%; 0.83%, then by 2018, Techcombank's ROA ratio reached 2,860%, higher than the average banking industry of 2.04%, one of the two most efficient banks in the region, along with Bank Central Asia of Indonesia at 3.28% [18]. In 2019, Techcombank's ROA ratio reached 2.9%, an increase of 0.02% compared to 2018 and higher than the industry average of 2.01%.
Chart 2.7: Techcombank ROA ratio in the period 2014 -2019
3.5
3
2.5
2
1.5
1
0.5
0
ACB
Vietcombank VPBank
Industry wide
Unit: %
2014 | 2015 | 2016 | 2017 | 2018 | 2019 | |||
0.54 | 0.53 | 0.59 | 0.76 | 1.63 | 1.58 | |||
0.72 | 0.69 | 0.75 | 0.79 | 1.22 | 1.48 | |||
0.88 | 1.26 | 1.79 | 2.49 | 2.45 | 2.27 | |||
0.7 | 0.83 | 1.15 | 1.65 | 2.04 | 2.01 | |||
TCB | 0.64 | 0.82 | 1.46 | 2.55 | 2.88 | 2.9 |
Source: [29]
Techcombank's ROE ratio grew relatively steadily during the 2014 period.
- 2017, however, there was a downward trend in the period 2017 - 2019. Techcombank's ROE ratio in 2018 was still high, reaching 21.5%, ranked 4th in the industry, higher than the industry average of 14%, but decreased by 6.2% compared to 2017. In 2019, Techcombank's ratio continued to decrease to 17.8%, ranked 6th in the group of joint stock commercial banks. The ROA and ROE ratios during this period decreased while Techcombank's profits grew steadily because in 2018, Techcombank completed the increase in charter capital by 3 times, reaching 35,000 billion VND, which made Techcombank's equity and total assets increase faster than the growth rate of profits.
Chart 2.8: ROE ratio of some banks in 2019
Unit: %
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
25.2%
26.3%
27.4%
21.6%
22.0%
18.0%
20.6%
17.8%
12.6%
13.7%
8.2%
Source:[29]