Vietnam Technological and Commercial Joint Stock Bank (TCB) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. Welcome to Techcombank's Analyst Presentation and First Quarter 2020 Results. This is a periodic event that attracts a lot of attention from not only an analyst, but also individual and institutional investors in Vietnam as well as all over the world. This time, we organized an online meeting on the webcast. While we cannot see you, we certainly hope you, your family and your colleagues stay healthy and safe. Before we start the presentation, let me introduce our presenters today. We have Mr. Phung Quang Hung, Standing Deputy Chief Executive Officer, Managing Director and Head of Customer Service and Financial Advisory Division; Mr. Trinh Bang, Group Chief Financial Officer; Mr. Vu Minh Truong, Head of Treasury and Financial Markets in Finance and Planning Division, Mr. Vishal Shah, Head of Business Banking Division. Our executives will share with you our results of the first quarter in 2020 as well as some discussion on the hot topic, COVID-19. At this time, I'd like to invite Mr. Phung Quang Hung to start our presentation.

Thank you, Tim. Good afternoon, everyone. It's our honor to host another quarterly presentation with you today. So thanking you very much for your time. This kind of event is very important to us, and we want to keep in touch with you and give you a frequent update, right, on our performance. So as you all know, we are going through a very challenging time. But the good news is that Vietnam is managing the COVID-19 very well, with the strong support and action from our government. So a restart of the economy is underway. But given the strong fundamentals of the economy, prospect for our economy and as well as for the banking sector remains very positive. With regards to Techcombank, our low-risk, high-return strategy is paying off and giving us advantage going through this challenging time. In Q1, we recorded strong performance with 37% and 19% growth in operating income and PBT, respectively. And the full impact of COVID-19 is not fully reflected in Q1 performance. So going forward, in 2020, our priorities is to focus on supporting our existing customers, while also maintaining strong risk and liquidity management as well as we will continue to invest in key capabilities such as data, technology and people excellence so that we will emerge stronger when the situation is over. So today, basically, we'll walk you through our Q1 performance. We will start by having Truong, our Head of Treasury, to share with you the macro outlook, then [ myself ] will share with you the -- our strategic execution. Then Vishal, our Head of Business Banking, will update you on what we have done to support our customers. And finally, Bang, our CFO, will give you a summary of our Q1 performance as well as the overall financial indicators. So let's start by having the Truong. Please share your macro outlook. Thank You.

Thank you, Hung. In my part of the presentation, I would like to say with you the combined view and assessment on the impact of the COVID-19 to the Vietnam macroeconomic environment as well as the financial markets. So I guess you all agree with me, this is a very new territory for us here with the COVID-19 situation. We have never been in this situation before. And the first part, I would share with you where we are today. We see that the COVID-19 has impacted quite a lot into our economy. So the first quarter, year-on-year, we have a first quarter growth of 3.8% of GDP. We also see the 4 months -- the first 4 months of the year, the export only grew by 2%. Actually, month-on-month, we see a quite significant drop of export in April compared to March. We also see that actually in the first 4 months, the revenues of the government has dropped and expand has actually increased compared to the budget. So our system credit growth also slowed a lot compared to the last few years with the first 4 months, only 1.3%. So this is where we are today. Vietnam still -- good news is Vietnam is still a lot better compared to the average of the world. We know that the forecast of GDP growth for the world this year is in between minus 3.5% and minus 6% by most of the major institutions. So we are still having a positive number here and positive forecast here. So this is where we are now. In the next slide, we want to share with you what we have done in Vietnam. In terms of the containing the COVID pandemic, the government has been very decisive with implementing measure of contact choicing and quarantining people. So that's actually for the last more than 30 days, we didn't have any new COVID infection case. And with all the current indicators give us actually quite a lot of confidence that actually Vietnam is going to be able to control the COVID within our border. And the economy in the domestic market is going to be -- is already, right, fully open. The government also has implemented fiscal and monetary measures to support the economy. And I think this is important for our corporates, for our citizens to go through this time. And Vietnam will get stronger after this COVID-19. So in the fiscal area, the government actually already quickly introduced a tax deferment pack of USD 7.7 billion to help corporate customers to delay their tax payments and social security pack to help our people to get through this time. In monetary policy, the State Bank of Vietnam was also very early in action and cut interest rate in this year for open market operation already by 100 basis points and also the ceiling of deposit rates for short-term deposits less than 6 months already by another 50 basis points, which is 4.25% at the moment. So this all will help us, will help the economy and our corporates to go through this time and become stronger. So at that combined, we tried -- we developed a base-case scenario. This is far essentially important for our tight planning for the rest of the year. Of course, we will apply a dynamic approach, so we will continue to assess the situations and adapt and change our plan. So we see that in -- within the country, we see -- we foresee a full open economy and with -- also a rebound of domestic tourism and services sectors. With regards to the world, in the base case, we are seeing the major countries to open up, their economies gradually late in the second quarter or starting third quarter. And also in the extended case, we see that, if the countries like U.S. and EU are not able to control the pandemic in their second quarters, then it may lead to a further slowdown of the world economy and then it also impacts our. So our growth forecast for this year, for GDP is 3.2%, and we are seeing the second quarter, so basically April and this month, May, being the hardest hit. We expect the economy to strongly rebound in third and fourth quarter with expectations that the other countries, the U.S., EU and of course, the Asian countries are able to control the COVID-19. We see -- we expect the export to rebound. Of course, we know that the industry, which actually are more impacted by this situation, is the export business, the luxury goods. But generally, agriculture, all the basic goods, productions will only be very slightly impacted. Another part that I want to share with you is the forecast of the Vietnam balance of payments. As you may know, in the past few years, Vietnam has always regarded a very strong positive balance of payments. This year, we will expect it to be not as good as last year. However, we still expect roughly USD 10 billion surplus in terms of balance of payments. We expect, yes -- this actually will basically enable the State Bank of Vietnam to buy more foreign currency from the market. And also the U.S. dollar versus Vietnamese dong currency pay would be quite stable this year. And this is very important factor for our corporate to do business this year, especially when our export and imports are growing and very strong part of our economy. So with this, I want to summarize -- share with you the summary of the key indicators for what we see in 2020 base case, a 3.2% GDP growth. Of course, we are foreseeing a more high level of a state budget deficit of up to 5% -- minus 5% to minus 6%. Our study give us the confidence that actually the government would be able to provide enough liquidity and have enough money funds to fund for the deficits given we are very strong in balance of payments, in currency reserves. And also the state budget has been improving very -- a lot in the last few years. We see -- as I shared with you before, currency going to be stable. We will see a credit growth, generally, a lot softer this year compared to the last few years. And banking markets remain to be liquid in our base case scenario. So this is the landscapes that I'm sharing with you. Now I want to hand over to Mr. Hung, who'll share with you more on our strategy and our execution so far this year.

Thank you very much, Truong. So you can see that in the current climate, I think it's very important to share with you once again our one-page customer-centric strategy because there are some key aspects of the strategy that make it very important when we go through this period. And in this period of time, customer-centricity become even more important to us when we support our customers. So you all know that with customer-centricity, we start by being very selective in where to play. For example, in wholesale banking, we are very selective in working with the leading corporate in Vietnam and the leading value chains in Vietnam to develop very innovative solutions to grow the different value chains. In business banking, we also are very focused on what we call focused subsegments, and we diversified our risk across those subsegments. We basically shifted from long-term lending to working capital loans and in -- and also in -- we diversify our incomes in business banking to different source of income, especially transaction banking businesses. In retail banking, we are also very focused on our affluent and mass affluent segments. So in the -- given the strategic capabilities that we have built in people, in risk and in data, basically, we have achieved top effectiveness and efficiencies in what we have done. So you can see that our ROA has reached the top level in the market. We also achieved more than 10% market share in the key businesses that we play, whether it is affluent, whether it is housing, Banca, card or digital banking. So going forward, given the growing customer base that we have built, we will continue to focus on deepening customer relationship and increase the number of product per customer. You also know that the tailored business model that we have developed for different segments, right? So on the Page 10, this is the -- an illustration of the affluent business model that we developed. But there is a strategic approach that we apply very consistently across different segments. That basically starts from using our value chain play to acquire customer in -- on the big scales at a very low cost. And then we provide a full scale interaction model to maximize customer engagement. That range from our zero-fee digital channel to 1% cash back program or our #1 credit card program that helped customers to transact more with us. And the more customers transact with us, the more we understand customer, so that we also provide a very tailored and innovative solutions to meet their more sophisticated needs, whether it is around mortgages or housing insurance, right, meaning protection needs. So the digital channel and the innovative payment products that we developed basically give our customer more choices during this difficult time. And going forward, we will continue to digitalize that customer journey to give our customers more choices as well as better experiences. So our low risk, high return strategy basically worked very well during this time. As you can see, our total assets has increased steadily in the last few years. And in Q1, our asset value also increased 20%. But what is very important is we continue to improve ROA as well as return on risk-weighted assets. And now ROA has achieved a very robust level of 3%. Looking on the liability size. Besides the strong capital base that we have, our deposit base is also increasing strongly, especially, and you can see that our CASA ratio now has achieved a very good level of 32%. So on the bottom line, our operating income and profit after tax also continued the good growth trend, with a 37% growth and 20% growth in Q1. So later on, Bang, my colleague, will share with you further about the quality of our earnings that we achieved through revenue diversification as well as through the cost management discipline that we have done. Now if we look further down into the credit portfolio, we can see the wealth structure and the quality of our credit portfolio. On the chart on the right, as you can see, right, in the last few years, we have been shifting from long-term funding in -- from long-term lending in wholesale banking to SME and to retail lending. So the retail lending contribution and SME lending contribution in our book increase, whereas we use our bond advisory service to help our customer to raise long-term funding. In our SME book, primarily our SME book is for well-established upper SME and SME businesses. And we diversify that across a number of about 18 different subsegment as well. Similarly, in our affluent book, you can see that more than 90% of our retail lending are for affluent and mass affluent segments. So those customers who are very wealthy and having a high ability to pay. I think last but not least, if we look at the lending portfolio from a collateral perspective, then more than 90% of our book is well secured. So that makes us very well protected going through this challenging time. Now if we look further down in the retail lending book, you can see that in the last few years, we have been shifting our retail lending book from -- away from riskier products, such as home equity or household and et cetera. And unsecured lending is very minimal in our retail lending book. 80% of our book of sale is mortgages. And in the past, you had some questions on the proportion -- the big proportion of our mortgage book. So here, I would like to emphasize that more than 90% of our mortgage book is for affluent and mass affluent segment. And that is very important because that is our targeted segments, who are wealthy and use the mortgages mostly to fund their living [ prosperous ], i.e., they become homeowners for those assets. And because the assets are so high value as well as highly liquid, the mortgage customer are very wealthy. That's the way we're driving down the NPL for mortgages. So you can see on the chart on the right side is that our mortgage NPL has been going down from 1.8% to -- now to a very nice level, a very healthy level of 0.8%. Okay. Yes. And I think it's also important to emphasize another aspect of our mortgage business in that this is a very good way not only to satisfy a key needs of our targeted segments, but also to basically distribute risk across the housing value chain. And help us to manage cash flows on the value chains. So on this chart, you can see the -- our loan book distribution across the housing value chain. You can see that the way we approach is we work with our selected partners to develop projects. And in the initial phase of the project, we initiate working capital loans for them to start the project. And when the foundation is raised and the project is on sale, we can distribute mortgages to our end users, helping them to -- helping the real estate developer to sell the project more quickly. What is important is that those mortgage disbursement become repayments for our working capital loans. So basically, only the cash flows run on our platform, and the working capital loans gradually are turned into mortgages. The mortgage book basically helped to bring down the whole risk ratio of the value chain to less than 100%. Now moving on to Page 15. When we look into SME business, it is a very similar story. So if you look at the loan book in the last few years, we have increased short-term lending to about 83%. That is a significant increase from less than 70% a few years ago. And also similarly to retail lending, more than 90% of our SME book is secured, right? And given our diversification into different high-value and low-risk businesses, we're also driving down NPL of SME book to a very healthy level of 0.3%, right? That's an even better level than 1% last year. And moving on to Page 16. In previous investment, you often have questions about our corporate bond business. So this is a very essential part of our business, whereby we use corporate bond advisory service to manage credit growth, but also to help our customers to raise long-term funding. So in 2020, we -- in Q1, we continue to maintain a very strong position in this market. Basically, we dominate this market with about 93% market share, right? So in Q1, we continue to help our customer to issues about VND 10 trillion bonds. But at the same time, we also distributed about VND 15 trillion bonds to our retail customer. So even with the impact of COVID in Q1, our customers continue to have a good instrument to invest, right, and manage their wealth. I think lastly, going to the funding side of our business, our deposit base continued to contribute to the overall healthy liquidity position as well as help us to manage NIM at a very robust level. So looking at the -- our deposit base, even with the impact of COVID in Q1 as well as due to seasonal factor, there is a slight increase in the CASA bay, yet we recorded a 29% growth in our CASA in Q1. That contributed to a total growth of our deposit base at around 13%. And looking further in retail banking, the CASA growth is contributed significantly by the very remarkable growth in CASA in retail banking at 52% year-on-year. But another good part is that when we look at our other types of transactions on digital channel, there is a good growth on online deposit as well. When customers changed the behavior, customer use our online channel more and more and therefore, the online deposits increased significantly, almost more than double the amount last year. So now our online deposit base contributed more than 40% of our total deposits. So this is very important to us because it adds to the overall efficiency of our operating model, and also give our customer more choices on our channel. So now I would like to hand over to Vishal, and Vishal will share with you more on what else we have done to support our customers.

Thank you, Hung, and good afternoon, good morning, depending on which time zone you're in. So Hung has elaborated on how we have successfully executed our strategy. Over the next few slides, I will elaborate on how we are supporting our clients by remaining open for business and at the same time, how we have effectively utilized the investments and really created an omnichannel and a digital channel experience across retail and corporate customers. After that, I'll also elaborate on the measures we have taken to support our clients to weather this unprecedented crisis. And lastly, I'll also provide some insights and inputs on our book for both corporate as well as retail by sectors and subsegments. So let me start by sharing our performance of retail banking or individual customers. As you all know, over the past 3 years, the bank has invested more than $100 million in technology. A large part of it was to modernize and bring through cutting-edge technology for our customers. With that, again, this year, in spite of the difficult and challenging situation, we had 73% year-on-year growth in our e-banking customers. As of 31st March 2020, we have 3 million retail customers, who are registered and using our channel. Similarly, if I draw your attention to the center part of the slide, the e-banking transaction volume. Over the past 4 years, we've had a 20x growth. Clearly, this is a stellar performance and in these challenging times where we see globally, not just in Vietnam, but in globally, the switch from offline to online, we are very, very well positioned to remain open for business, provide the omni-channel experience, online mobile as well as call center as well as branches are now open, given the partial lockdown has been lifted from 22nd of April. But needless to say, we are seeing the shift. And with the COVID-19, we will see the shift even happening much, much faster. And as a bank, our retail bank is extremely well positioned to capture the growth. Again, another stellar number, which is noted there, we had 154% growth quarter -- year-on-year, Q1 this year versus Q1 last year in our e-banking transaction volume, which just shows the quality of our CASA and deposits and the stickiness of our customer relationships, both for our existing clients as well as the new customers, which we continue to acquire. Last but not the least, it's not just that the customers are using us to transact more and leverage our 0 fees, which we've had for many, many years now, but also the transaction value has substantially increased. So 124% growth year-on-year, VND 967 trillion to be precise, was the transaction throughput through our online and mobile banking channels for our retail customers. In addition to being convenient from online and digital banking perspective for transactions, last year, we had mentioned that we had also enriched our mobile banking and online banking platform, where our customers could apply for new credit cards online as well as place term deposits online. And clearly, in these challenging unprecedented times, where even if branches are open, obviously, people want to adopt social distancing and clearly, we are seeing the shift across affluent, mass affluent as well as mass, where in quarter 1, 34% of our new cards were applied online. And this trend will continue, in our view and that's coming from 11% for full year 2019, 34% in Q1 itself. So while we are growing our cards business, the online bank -- the online card applications has seen a significant growth, and we expect this trend to continue. Similarly, on term deposits, as Hung shared, we have seen strong growth in CASA as well as overall deposits in a bank and particularly retail bank. And with the flight to quality, we see our term deposits increase for retail. We are clearly seen as a preferred bank and a safe bank to park the deposits, and now we've made it even more convenient that the customer sitting at their home can apply for term deposits online. And we have 43% of our TD volume now in -- which is via online channels. And even in the affluent segment, where we have a full suite, we have a relationship manager, we see 35% of our new term deposit volumes coming through on online banking. The pie chart on the right is clearly a depiction on what has been a trend, which is the shift from offline to online. And with COVID-19, the trend is only going to increase. And as a bank, given our investment, which we've made a deliberate investment, deliberate execution and concerted execution of strategy is now ensuring that we are reaping the benefits even in these challenging times. 70% of our transactions now in retail is through e-banking, online and mobile banking. Another specific number, which I want to draw out from the chart, we had in Q1 153 million transactions, which is almost half of what we had in 2019 throughout. So if this is a leading indicator in terms of the transaction activity, even in tough and challenging times, we clearly expect our performance, which is the lagging indicator to -- and later, my colleague Bang will clearly share about our Q1 performance, but also some of the outlook. But needless to say that our clients are leveraging our online banking a lot more, number one. Number two, our relationships are a lot more sticky. And number three, are investments, which we've made in online and digital banking, are clearly reaping the benefits, and we are very well positioned to leverage that in these challenging unprecedented global pandemic times. So you must be wondering on the corporate, how is the story, right? The corporate business, which I represent, the results are equally encouraging. We have -- 70% of our corporate customers are now digitally active. So we have strong year-on-year growth in terms of acquiring new clients. And in the corporate business, as Hung has highlighted, it's a very selected approach in terms of customers we onboard in wholesale bank as well as the business bank SME business, which is very sector and subsegment led focus. But 70% of our clients are already now active on e-banking. And clearly, in these unprecedented times of social distancing, we have seen the ongoing adoption in retail as well as corporate. Number two, again, our transaction volume keeps increasing. And we have seen a 37% growth in payment transactions. So we had 8.9 million transactions for our corporate business, of which 72% are now digital and 28% are still over the counter in our branches. So you can see just in 1 year, from Q1 2019 to Q1 2020, we've managed to switch from a 52% transaction volume on digital to 72%. At the same time, we have grown 37% of our transactions, which are now close to 8.9 million transactions for the corporate business. Last but not the least, our volume remains also very encouraging. So 72% growth in our volumes, so VND 339 trillion is what we processed through online banking for our corporate customers, which is 53% of our total volume. So clearly, we are well positioned for both supporting our clients. We remain open for business. We continue to offer 0 fees. We've continued to enrich and enhance our online and mobile banking platforms. And clearly, in these unprecedented times, we are supporting our existing clients. We remain open for business, but also have successfully acquired more new clients. So for customers on the lending side, how are we, as a bank, supporting them to weather this crisis or pandemic? So firstly, as [ Truong ], my colleague, explained that Vietnam has eased the partial lockdown and pretty much the economy is now open. And there are certain sectors, which are still affected, particularly exports, luxury goods. So on 30th of March, the State Bank of Vietnam issued Circular 1, which basically detail the measures, the banks and financial institutions should take to support clients, individuals as well as corporates alike, to support them where they have been heavily impacted due to COVID-19. So at Techcombank, we announced a very comprehensive VND 30 trillion package, VND 30 trillion approximately to the tune of USD 1.3 billion. And the package is extremely comprehensive for retails, retail customers, SME as well as corporate customers, and it has 3 key benefits. First, it is -- it allows the customers to reschedule their debts for up to 12 months in line with Circular 1. Number two, we would offer them up to 2% of reduction in interest rates to support them. And number three, particularly for retail customers, if they would like to pay their loans early if they are sitting on surplus cash given a large part of our clients, our affluent and mass affluent and they may be sitting on liquidity, we will also waive the early repayment fee. On the right-hand side, given the Circular 1 was issued on 13th of March, as of 31st March, a very small portion of our book is under restructured portfolio. It's only 0.2%. But as we've seen in the questions coming through, one of the questions is how much of the book -- how much of our loan book do we expect to be under restructured. So as of 15th of May, which is end of last week, we expect up to 7% of our book to be under the restructured portfolio across wholesale, SME and retail. Moving on. So the shape of our lending book -- our total book -- lending book funded loan book is VND 232 trillion as of 31st March. 44% of that is to individual clients, majority of which is mortgages and it's backed by property. So it's secured lending, as Hung had mentioned. I will focus on the balance of the book, which is 56% of our book, which is to wholesale as well as SME customers. Our exposure is very diverse, and we followed, obviously, the sector and subsegment approach. As per what [ Truong ] mentioned and as the domestic economy is opened, what we do see is domestic travel has opened up. Having said that, international travel and international tourism is a very big part of Vietnam and those sectors still remain closed, number one. Number two, leisure activities as well as nonessential FMCG, obviously, or luxury goods, obviously, is something where we are seeing a particular slowdown. And last but not the least, construction and materials during the time of the partial lockdown, we had seen slowdown. Having said that, the economy is gradually opening up. So what I would like to share on this slide is that about 11% of our loan book is to sectors which have been particularly hard hit. But given that the domestic economy is reviving, we do believe that our loan book would be under the restructured category, up to 7%. And on the right-hand side, I just want to share our NPL ratio, which Hung has earlier mentioned, remains at 1.1% in quarter 1, which is lower than 2019 and remains within our risk appetite. So with that, I'll hand over to Bang, our CFO, who will share more details about our quarter 1 performance as well as provide some outlook for 2020. Bang, over to you.

Thanks so much, Vishal. As you've heard from my colleagues today, Vietnam is off to a good start in combating COVID-19, and Techcombank, in particular, has been well positioned heading into this year on the back of our strong 2019 financial performance. A lot of that, again, as Hung mentioned, is on the back of our low risk, high return strategy. Now while our first quarter performance reflects this strength and strength and position, as Hung also mentioned, it doesn't fully capture the impact of COVID-19, and we would only expect to see more clarity on this over the next few quarters. But as I run through the results today, certainly, I want to highlight the key drivers that should enable us to support our customers for the balance of 2020 as we restart the economy and certainly hope that COVID-19 is more contained on a global basis. So with that, let me launch into our overall financial results. So as you can see, and Hung had mentioned this earlier, if you look at the high-level numbers, 39% year-over-year on turnover, sorry, total operating income at VND 6 trillion. That was supported by strong net interest income growth, 23% year-over-year. We had a particularly strong quarter on noninterest income that reflected both a combination of our NFI, net fee income, as well as the contributions from rotation of our liquidity book and sales securities. On the expense side, we were up 33% year-over-year. I'll talk about that a little bit more later, but still within our mid-30s target cost income ratio. So we were at 35% on the quarter. If you look at our general provisions and specific provisions, the general provisions were negative year-over-year, which reflects a slower loan growth relative to last year. But as you can see, we did increase specific provisions quite a bit relative to the same period of 2019. And this is really to reflect a more cautious approach as we looked out at the balance of the year. And so we accelerated the write-off of some of our bucket 5 loans. Net-net, 19% year-over-year growth on PBT finishing the quarter at VND 3.1 trillion in profit before taxes. Now when you look at the some of the key drivers on the net interest margin side, Hung had mentioned the high-quality credit portfolio that we have that is mixed across different customer segments. Together with what we've been able to do is manage the cost of funding, as we've mentioned in previous quarters, both in terms of CASA, but only -- as well as in our ability to mobilize other forms of capital, which I'll highlight in a moment. So the cost of funding has been again and continues to be a strong advantage. On the lending side, we've said we are competitive. But you have seen that the rates have generally been fairly stable at this point. So our net interest margin, again, was fairly stable and very healthy through the first quarter at 4.7%, and you can see that reflected in our net interest income, which was up again 23% year-over-year. Looking at net fee income. We had a strong quarter, 65% up year-over-year. This NFI also includes our FX sales, which we include in here of our financial statements as part of our fee income. Walking through some of the components, the strongest performer clearly was in our bond underwriting business. We saw strong volume in the first quarter, as Hung mentioned, as well as strong demand on the customer side, on the retail side. You could also see that in our transaction, the banking business, LCs, cash and settlements and FX sales, all performed well year-over-year. A reflection again of increasing activities, especially domestic in terms of LCs. And again, FX sales as COVID-19 wasn't fully reflected in terms of activity driving the first quarter results. Cards was up year-over-year. So we saw an increase both in terms of number of cards as well as purchase volume. So again, not seeing the impact yet of COVID-19 as people are spending. Banca is an area clearly a little disappointed in terms of where we are relative to last year quarter-over-quarter, down 18 -- year-over-year, down 18%. This is an area where I think the most important thing to note here, it has nothing to do with the underlying secular demand for bank insurance products. It's something we still feel very strongly about. But it is -- we were impacted a bit by COVID-19 in quarter 1, in particular to Techcombank as we are migrating fully over to the direct model. We didn't have the opportunity to truly extract the productivity and efficiency gains from that. So that's something that we can focus on now as we head into the balance of the year as the market slowly reopens, and we've seen better activity already in May. So it's something that we are certainly focused on. But overall, when you look at our net fee income, a strong quarter. The other thing I think worth noting in this environment is the quality of the segments that we pursue. So when you look at both on the retail and corporate side, really the -- the quality of the net fee income. This comes mainly from the affluent and mass affluent. You've seen that proportion increase over time. So being very targeted and who we focus on and seeing the benefit of that target segmentation and customer focus, we see the proportion and NFI increasing certainly on the retail side, and this would be products, such as Banca and importantly, the wealth management products, like bonds. On the corporate side, likewise, as Vishal mentioned earlier, again, strong corporate activity. A lot of this, when you look at the portfolio of our customers, it's mainly in the upper SME and SME. These are larger, more established companies, able to weather the COVID and certainly much better than some of their smaller SME businesses. So overall, very happy with the mix and continue to be very focused on the segments. On expense discipline. We've talked about this over the last several quarters. It will continue to be a theme and one of the things that we are able to manage and control in this environment. So when you look at our overall target that we've been talking about a 35% cost-to-income ratio. However, 33% up year-over-year, it gives us, again, an opportunity to focus on where that spend is taking place. A lot of that will continue to shift from headcount more into investments in IT and capability building, as Hung mentioned earlier, so we expect to see depreciation and amortization expense increase over the coming quarters with those types of investments. The other opportunity, clearly, as we've seen is an opportunity to really look at the other operating expenses and really focus on where are they adding value and where can we drive operational efficiency through further investments. So we'll be keeping a very close eye on head count, increased over the year. So that's something that is certainly one measure of it in terms of managing staff costs and then really focusing on efficiency gains through investments. Importantly, and we've talked about this as part of the low-risk, high-return strategy, and you can really see it reflected in the numbers, is when you look at our nonperforming loans over a long period of time, they have decreased. We clearly have written-off our VAMC loans over the last couple of years. So the NPLs truly reflect the state of the book. When you look at the decrease in nonperforming loans, correspondingly, you would expect to see a decrease in provision expenses and credit costs, which we've seen very much in line. Now as I mentioned earlier, first quarter, when you look at provision expenses for the first quarter relative to all of 2019, it is almost at the same level, again, reflecting a cautious approach to how we're provisioning for this year given the uncertain environment ahead. But at the end of the day, credit card still look very strong relative to a historical basis and importantly, our coverage ratio has increased as well. So nonperforming loans certainly benefited in a decrease over year-end period because of the written-off loans, but overall, as Vishal said, we remain comfortable with the quality of the loan book at this period. Now I think -- as Vishal talks about supporting our customers and Hung as well, one of the things, as we look at how that is done, it really comes back to having a very strong balance sheet to support our customers during this environment. We have been deliberately building up and strengthening our balance sheet over the last couple of years. As you can see, looking at our equity position, that has increased significantly on an absolute basis in terms of the amount of equity on the back of our IPO in 2018 as well as retaining 100% of our earnings to build up our capital base. When you look at it from a capital ratio standpoint, we are leading the market with nearly double the minimum standard, both in terms of capital adequacy ratio of 16.6% and even core Tier 1 of 16.3%. So that gives us a measure of comfort of having a fortress balance sheet as we think about the next couple of quarters and where we may need to support our customers. Importantly, on the liquidity side as well, and we've seen the volatility that took place in quarter 1, having robust liquidity is certainly important for those moments of shock, and we have and we'll continue to focus on that until the markets are more stabilized. And when you look at that, both diversity of funding and type of funding. So in -- for example, in the end of fourth quarter, and I'll talk about in a moment, we've raised additional liquidity in long term -- medium to long term in the form of a syndicated loan, which when you look at it on a pro forma basis from December to March, we've increased our surplus funding quite significantly, again, giving us room to support our customers whatever may come. At the same time, when you look at our liquidity ratios, LDR, very healthy at the levels of 76%. Short-term funds, the medium-term loans as well at around a 31% level that compares to 85% regulatory minimum and 37%. So again, very robust liquidity metrics. Now just on the funding side, we started out the -- with the intention of raising about $300 million at the end of the fourth quarter to term out our debt and diversify our funding. There was -- and despite executing this transaction through the volatile first quarter that we were encountered very, very strong demand reflection again of our credit rating as well as our reputation was able to increase this from $300 million to $500 million at the original terms and ultimately closed on a $500 million transaction at LIBOR plus 1.50%. So this will give us significant liquidity to support our customers, and we continue -- and we'll continue to look at opportunities to diversify and maintain adequate and strong liquidity as we ride out the rest of this year. Now one of the things, and I bring this up and for the reason, when we look at the valuation of the bank relative to our peer groups, both locally and regionally, it's still clear that the market does not value the bank in terms of the resilience of our balance sheet and our business model. So when you look at the 2 kind of common metrics for valuation, both price to book against ROE as well as price to book against return on assets, we're well below our best fit line of our various peers. Now on a return on equity basis, that doesn't always capture the quality and diversity of earnings, whereas on the return on assets, as Hung mentioned, at 3%, it really, again, reflects both the diversity of our earnings, but as well as the efficiency in which we use our balance sheet. Either way, I think there's certainly an opportunity for us to and for the market to fully value us over time. Certainly, over the next couple of quarters, we demonstrate our ability to execute on our model and show that the strength and resilience of our business. And that's really what -- as we think about what we're going to do, we're going to continue to focus as a team on executing. When you look at the track record that we've built over the last couple of years, we're now on 18 quarters of year-over-year revenue growth. And importantly, when you look at the quality of that, it continues to improve, as Hung mentioned. So the net interest margin as well as the net interest income, the quality of that has improved as we rotate our balance sheet, both on the asset side as well as on the liability side in terms of lowering our cost of funding. So those are the things that we will continue to focus on. And certainly, we would expect that the market will recognize that over the coming quarters. Now as we look ahead at 2020, we're not providing any specific guidance today. We will do more of that in our AGM next month. But certainly, I want to provide a view as how we think about the rest of the year, especially given what [ Truong ] shared earlier in terms of potential outlook, both a base case and an extended case. So as we think about credit growth and compare this again all relative to 2019 levels, we started the year at 13% credit limit given to us by the SBV. So this was similar to where we started out 2019. Now granted, the market and operating environment is completely different, and our strategy is a little bit different given the environment. So the strategy to this year will be much more on measured growth. The focus will be much more on supporting existing customers versus aggressively going out and banking new customers. And as we watch and see how the market recovers, there's still room for us to go back and ask for more credit growth limits as we did last year 3x. So 13% right now is what we're working within. I think there's room, as I mentioned earlier, given our leverage ratio of 6x and the strength of our balance sheet, there's certainly more room to come back. But really, the focus will be on measured growth. Net interest margin, I think the important thing here to note is we feel very comfortable that we can maintain a stable net interest margin and, importantly, a healthy one for the balance of 2020, and this will offset some of the -- again, a lot of it's a reflection of our lower cost funding, but ultimately, will offset whatever we think will come in the form of subsidized interest and support for our customers. Non-NII. This is where we may see some downward pressure relative to last year. It's a function, again, of the lockdown the country has in terms of foreign visitors, the impact of social distancing. We've seen some of that impact in the first quarter, certainly with our Banca business. We've seen some of that, again, with some of our LC business as well, is starting to come off a little bit, but hopefully, that will recover as business activity starts to pick up. But I think if we look at it overall, on balance, and then I think the market environment on the non-NFI may feel a little bit of pressure this year. On cost-to-income ratio, as Hung, mentioned, we'll continue to invest in building capacity and certainly investing to accelerate our digitalization. Now if the economy, as Truong Hung mentioned, slows down a little bit or we see that happening outside in the global markets that spillover effect may cause some revenue pressure and cause some upward pressure on cost income. But at this point, I think we're reasonably comfortable with what we're seeing. Again, the first quarter was an indicator and we're already seeing some great recovery in the market. So slightly upward, but still kind of within the targets that we have communicated in the past. On NPLs, from the low levels, we had last year of 1.3%, I would say and I think Vishal gave you a bit of a preview. We're watching this very carefully. We're proactively provisioning. We have the potential benefit of Circular 01 to support our customers. But I think on balance, we would expect to see NPL levels rise relative to where we closed last year, but still well contained within our appetite, which we have mentioned before, the target is to be under 2%. So that is something that we still, at this point, feel comfortable we can manage. And then lastly, and related to that is credit costs. Again, we were at very low credit costs that reflected the quality of our balance sheet and asset quality. So we'd expect to see higher credit costs relative to 2019, and we'll watch that as the situation normalizes. But again, I think well within what we would say compared to the market as well as, I'd say, kind of linked to NPLs. So overall, I think on balance, we're cautiously optimistic as well. But that gives you a sense of what we're seeing. And again, we'll make sure we get back to you as the -- in the coming quarters and coming months. So strategic priorities, I think it's pretty clear, as my colleagues have communicated, number one is focusing on our customers and providing customer support during this challenging period. It's really maintaining strong and prudent risk management, looking at our credit portfolio very carefully on a weekly basis and very importantly, focusing on specific actions to mitigate and manage any potential problem loans. On the digital side, I think we've learned from COVID-19 and Vishal and Hung both mentioned the changing behavior of our customers. So very important to continue to roll out more and more digital solutions and prepare for the post-COVID-19 environment. This includes upgrading our technology, infrastructure and ensuring operational resiliency. Cost discipline I mentioned already. We'll continue to manage this, but continue to focus on opportunities where we can enhance customer centricity. And then lastly, 1 of the big initiatives underway this year is a refresh of our -- the next 5-year plan. So we've come off the end of this year of a 5-year plan where we have managed to execute and really hit our targets along the way, hit or exceed them. And so with the same level of diligent effort and deliberation, we'll be focusing on that over the coming months. We'll have more to share with you, but excited about what this could mean for our bank, as we move forward with our transformation. And really, we're already underway with this refresh. A lot of it again is digitalizing the customer journey and building our digital ecosystem. If anything, the customer more and more is really important at the center of everything we do. And so everything kind of going forward will be with that focus. And then obviously, the other point of that will be making sure in a post-COVID-19 environment, we implemented and focused on that in our plans. So with that, I think in closing, what I would say again is we started off the year in a very strong position. We've weathered the early months very well, both as a country as well as a bank. Number two, we're cautiously optimistic as the economy restarts. I was commenting to my colleagues on the way over here, the traffic jams we were in just reflect the activity that has resumed. Obviously, we're a beneficiary of, again, no community transmissions for over a month. So things actually feel pretty normal here, and we're seeing that pickup in activity. So again, very cautiously optimistic about that. And third, probably most importantly, the value drivers, the key value drivers of our business remain very much intact. The secular growth of our customer segments, especially the affluent and mass affluent will still be there in a post-COVID environment? So very excited to be able to serve those customers. So with that, really in closing, we will continue to keep everyone informed and provide more clarity as we see this situation evolving, but cautiously optimistic about where we are right now and as we look at the rest of the year. So thank you very much. That concludes our formal presentation. We're going to take a 5- to 10-minute break and then return for Q&A.

So many thanks to our 4 executives for sharing the results to all value investors and analysts who are joining in our webcast today. As usual, the next part will be the Q&A section. So before moving to the Q&A session, please take a short break. We will come back in 10 minutes. Please stay tuned. Thank you. [Break]

Welcome back to Techcombank's analyst presentation and first quarter 2020 results. Thank you for joining our webcast. So we will start our Q&A session now.

Our first question comes from Kevin from [ Vestan ] Investments. How will SBB's multiple rate cuts affect Techcombank this year? And I'll ask Mr. Trinh to answer this one.

Thank you for the question. I would like to clarify, there are 2 key rates at the SBB cuts. Number 1 is OMO rate, 2%, 3% from 3.5% and the short-term deposit rates for -- kept from 4.75% to 4.25%. So with regards to the OMO rate, it's actually have kind of a low collaboration to the lending and deposit rate of the market. Whereas the interest rate deposit kept for deposit -- short-term deposit shorter than 6 months, this has a big impact to buying cost of fund as well as our tech combined cost of funds. So this definitely will give us more room to cut our lending rates. We will expect our NIM to be very little impacted by this. But this is definitely a policy to support the economy. And going forward, we might have to see [indiscernible] of Vietnam evaluate the situation further and whether they would consider further cutting the rates, depending on the COVID situation. But all in, it does not impact our net interest margin so much. Thank you.

The next question comes from [ Ms. Ha at HSC ]. TCBS recorded high profits in Q1 2020, is this related to the bond business and how do you see demand for bond issuance and market demand for bonds this year? I'll ask Vishal to answer this one.

Sure. Thank you for the question. So yes, Q1 was a strong year -- sorry, a strong quarter for us, as Bang has mentioned, and our noninterest income recorded strong growth. As you are familiar with our strategy, our strategy is very sector driven in the wholesale as well as the business bank. And within that, we support our key large corporate clients and support them through lending, but more importantly, bond business for their long-term needs. So in quarter 1, we saw the -- we had a very strong pipeline, as we enter January this year, and those are the transactions we kind of executed with the domestic economy opening up and a large part of our business is domestic, domestic consumption. We do expect that our pipeline would remain strong and steady. And from an indicator standpoint, the current pipeline indicates that our volumes are likely to be almost close to 2019. should the economy opening -- if the economy continues to open and we see significant uptick in the GDP in Q3 or Q4, we could see a higher demand. But at this point of time -- point in time, we do see that our overall bond business to replicate the success in 2020 similar to 2019. And frankly, it's just -- it just shows the demand from our large corporate clients to access and invest in their capital needs.

Our next question comes from [indiscernible] Investments. Do you see any behavioral changes from customers during and after the pandemic? What will this mean for the bank's business in the future? Mr. Hung, could you answer this one?

Thank you. That's a really good question. Clearly, as I shared with you in the previous presentation, there is a clear change in customer behavior. We see customers will go online more and more. In the last 3 years, we have been doing very well in terms of bringing and offering our online channel to our customers. And our customer was -- has increased significantly. In Q1, we continue to see that trend. The number of digital customers increased about 10% in Q1 only. If we look at transaction volume or transaction value on our digital channel, volume and value increased almost 2.5x and 2.2x, respectively. So that's a very, very significant change. And earlier, I also shared with you about the shift in customer behavior in deposit. So instead of going to the counters, half of our deposit base now is online, right? So that's a big change. So given our early investment in digital and online channels, we believe that we are in very good position to continue to serve our customers going forward. I think there is another change that we also see is going through this difficult time customer expectation in terms of -- let's say, in terms of the credit witness and the trust that they place with the bank has become even more important, right? So when we see the shift in customer deposit to us, that is a very good sign that customers have a very good trust in Techcombank and continue to deposit a lot of money with us.

Yes. Okay. Thank you. The next question comes from Max at Cogent Investors. Provision expenses were up quite a bit in the quarter on a year-over-year basis. Was this a result of any changes in the credit quality of the portfolio? Mr. Bang?

Thanks for the question. Let me just flip over. So in terms of provision expenses, I mentioned during the presentation that we did take a slightly more cautious approach in the first quarter. accelerated some write-offs of loans we would have expected likely to write off in 2020. But when you look at it, as Vishal mentioned, the overall credit quality was not severely impacted in first quarter. So as we look out at the rest of the year, I mentioned this in terms of general direction, we would likely see provision expenses increase year-over-year. But at this point, really, first quarter was more a reflection of just taking a slightly more cautious approach in writing off some of the bucket 5 loans we already had on our book. And I think just as -- it's not really a deterioration yet that we see, but something that we'll follow very closely.

Okay. The next question is a combination from several people. Tang from [indiscernible], who had pretty similar questions. You've heard this question before regarding the real estate concentration in your loan book. And you've talked about mortgages and real estate sometimes together and sometimes differentiated. What is your view on the risk of mortgages and other real estate loans? And then a follow-up is that given the concentration that maybe you have in this sector, how would you fare if the housing market were to freeze for 2 years?

Thank you for the questions. Yes, we did hear your question in the past as well, and that's exactly why in my previous presentation, I also emphasize on the mortgage business. So let me go back to that -- let's go to Page 13. Yes, let's go to Page 13. So here, you can see that, yes, mortgage contributed significantly to our retail lending book. And that is a cautious and a major approach that we took a few years ago when we set our strategy. We went through the financial crisis back in 2012 and even further back in 2008 and we learned a lot of lessons. So what we did here is that we are very selective in where to play and what to focus on. So in terms of where to play, as I mentioned earlier, we are very, very selective in selecting the real estate developer to work with. That's number one. So again, on the value chain play on Page 14. I just shared with you earlier the way we basically spread the risk across the value chain and the way we work end-to-end to manage cash flow on the value chain, right? And the way we use mortgage to basically distribute risk and turn working capital loan or the corporate loan into retail loans. That is very important. But among on the retail lending products, we -- now we believe that it's basically proof that the mortgage is a very low-risk product. Because -- on Page 13, you can see that more than 90% of our mortgage book is to the wealthy affluent and mass affluent customers. So that's very important, right, because capacity supply is so important. And then we -- learning from the past, we also understand that the quality of collateral asset is also very important. Our asset -- our collateral asset is high value and very well liquid. So that's very important. And it's well proven by the NPL of mortgages that have been going down, right, to 0.8%. If we even look at the selected projects -- mortgages projects, our NPL mortgage is even lower at about 0.2%, 0.3%, right, depending on projects. So again, I would like to emphasize that very selective and top developers. That's number one, wealthy and very high capacity to pay retail customers, very good assets, right, very highly liquid assets. So that's very important. So that's the way we manage the risk. And now mortgage proved to be a very low risk product for us. As you asked about the next 2 years. Clearly, COVID-19 has an impact, right? And we have seen some slowing down in the real estate market. But given that we are controlling the situation very well in Vietnam, we believe that the slowdown is just very temporary. And in May, we already see mortgage sales or housing sales start picking up. Given the strong fundamental of the housing market, whereby penetration is still very low, you know that it is only 5%. Very low if we compare it to neighboring markets such as Thailand, where mortgage penetration is above 20%. So given those fundamentals, right, it is -- Vietnam housing market is very well positioned to grow further and recover quickly when this situation is over.

Okay. There's follow-up question from Ha, which is, could you also address the level of customer concentration in your portfolio? And how do you manage concentration risk, especially during challenging times like this?" Mr. Hung will answer. There is -- question is about customer concentration in the portfolio.

Yes. So again, the different elements of our strategy that I want to emphasize is, again, right where to play. We are very selective. And number two, my colleagues, Bang mentioned a lot about our robust risk management. So we follow a very strict and strong risk management approach. So in terms of the question you asked, with regards to concentration of the customer, we strictly follow State Bank's regulation on the lending exposure limit on a single customer or a group of customer. Even when we look at contribution in TOI, right, top customers only contribute typically much less than 5% in our total TOI.

The next question is NIM increase from 4.5% in Q4 to 4.7% in Q1. What is your expectation for NIM this year? And how will COVID impacted? Bang, will you answer this one?

Certainly. I mentioned earlier, I think less focus on level of NIM versus just kind of the overall quality and stability. But the direction we provided towards the end of the presentation is we still expect it to be stable this year. A lot of it again is a function of the funding cost that we've enjoyed and built up over the last couple of years. Still we'll need to be competitive on the lending side. But I think we have certainly a much stronger buffer relative to our sector peers in terms of cost of funding. So overall, we've been above the 4% level. We finished last year at 4.2%. So what I can say again is we feel that we'll be within that range for 2020.

The next question is, your net fee income was up significantly on a year-over-year basis, but banca decreased year-over-year. Could you help us understand the dynamics here? Mr. Hung?

Thank you. You are right that we recorded very good performance in fee income in Q1 so we have seen fee income growing more than 50% in Q1. And that is across different sources of fee income, such as bond issuance, right? That is a very significant source of fee income for us. And also, we also saw good growth across cars -- cash and settlement services as well. With regards to bancassurance, we saw an 18% reduction compared year-on-year. So that is partly due to the COVID impact, but it's -- we also admit that we didn't perform as well as we wanted. However, in Q1, we truly completed the migration to direct model. And given the new tailored business campaigns that we already prepared to introduce in May, right, starting from May when the economy is back to normal. We expect to see good growth in bancassurance business going forward.

Okay. The next question comes from [ Ms. Han from Manulife ]. What impact will COVID-19 have on CASA credit growth and bad debt provisioning for the bank in 2020. Bang, will you take that one?

That's a lot of questions but I'll do a best to address them. Maybe we go to Page 34 really quick -- here you go. So I think on CASA, as Hung mentioned, we've still seen year-over-year CASA growth in the first quarter. And as we look at our scenarios for the rest of the year, we do see stability in CASA. And what I mean there is both in terms of the ratio of CASA, but importantly, the absolute growth in CASA. So at this point, we still see that there will be some rotation as not to be surprised from CASA into TDs, as we've seen in the first quarter. But overall, I think CASA stability is important in terms of we're seeing that. Credit growth, I mentioned earlier, the operating environment is very different from 2019. As Truong mentioned, GDP growth right now is at a much lower level than it was through 2019. It was 3.8% for the first quarter. So credit growth will similarly follow that. We do have 13% now and certainly prepared to go back to the SPV, if we see there's more opportunities to lend responsibly, but as I mentioned earlier, really focused on selective lending to our key existing customers. And then on bad debt provisions, it is early. We didn't see a lot of that in quarter 1. Vishal has already given indications of how we look at the overall portfolio and what levels we're seeing. As the economy has opened up, week by week, things change. So from early on -- in terms of the amount of potentially restructured debt, some of that changes and as the economy starts to come back, those levels may actually decrease. So hard to kind of make a call on that right now. But what I would say is, again, relative to last year, we'd likely see more provision expenses but within the -- our target risk appetite.

As a follow-up to that from [indiscernible] indirect, when will you give the guidance for the credit growth and profit growth for 2020.

Okay, sure. Look, our AGM is next month. That's typically where we provide specific guidance. We certainly recognize that the AGM has been delayed from our normal period of April, but certainly operating in a very unusual and volatile market. So we will certainly share that next month. We'll certainly have a view as well as we're looking out at the second quarter to reinforce that. So that's when we'll share more specific guidance.

The next question is from Ha, HSE again. CASA was relatively flat sequentially. What is the trend for corporate and retail CASA. And now I'll ask Vishal to take this one.

Sure. Thank you for the question. Let me just flip through the slides on. Yes. So specifically on retail, our retail CASA has depicted growth, whereas corporate CASA has been relatively flat. So from a business perspective, the insight I would like to provide is, in quarter 1, we generally do see corporate CASA actually decrease because pre-TAD and post-TAD, we know most corporates would pay bonuses, number one. Number two, given a large part of the economy was under partial lockdown and slowdown the rotation of cash and particularly inflow of cash or sales turnover for a lot of our retail businesses, nonessential FMCG was impacted. At the same time, we have seen strong growth in term deposits in retail but also in the corporate business, which shows that customers who are cash-rich and who do not expect to grow their business or buy raw material have preferred to park their surplus liquidity in the form of term deposits with Techcombank. So overall deposit growth compared to December 2019, our deposit balance is VND 231 trillion. We still grew at VND 235 trillion. The mix has albeit changed a little bit, where CASA ratio is now at 32.2%, but that depicts the flight to quality where a lot of our retail customers as well as corporate customers alike have chosen to park their surplus liquidity with us. So as the domestic economy opens up, as the cash rotation is -- the domestic economies open up and we start seeing business activity rebound, we do expect our CASA as well as term deposits balances to keep growing. Yes. So that would be the overall guidance. And particularly, retail would continue to lead the way. Another key indicator which we've provided to you is the activity of our customers, which is typically in the business, we believe that this is the key leading indicator that if customers choose us as their main operating account, use us for their payments and collections and the bank to park, eventually the liquidity will definitely come to us. So both on the retail business, for payment volumes. On the next slide, we've shown the new term deposits. And then on Slide 20, it's the corporate volume. So clearly, the throughput, the payment volumes has been increasing. And with that, we do believe the CASA as well as overall deposit will be a lagging indicator. So as the economy revives, we would expect CASA growth as well as overall deposit growth to be better and stronger in quarter 2.

Okay. Thank you, Vishal. The next question comes from Thomas [indiscernible]. Cost-income ratio was 35.5%, which is down 1% year-over-year, but compared to the full year 2019, it is up. What do you expect the trend going forward? And what is driving that? Will COVID impact it? Bang, will you take this one?

Certainly. So as we've said in the past, the target for us is we're growing our business fairly rapidly and investing both in people capabilities and systems. The target was more focused on maintaining a cost-to-income ratio. So within that year-over-year OpEx growth would fluctuate and then you can see in the first quarter, up 33%, but as we look ahead, it's more, again, the shift of that spend where that happens, and again, more into technology, driving operational efficiency versus just ramping up headcount, we had to increase headcount last year. As I've mentioned in previous analyst presentations, a lot of that was to support the 1 million new customers we had coming into the bank. Over time, we want to serve those customers much more on digital basis versus in the branches. So again, it's more how we rotate that. And with that rotation as well as we gain some of the efficiency, we'll be able to manage our headcount better. And then I think this environment, if we've seen anything, it's really an opportunity to relook at all of our expenses. One example in the first quarter is that massive shift very quickly from traveling and commuting between 2 markets and work from home and working remotely and engaging. So I think there will be more opportunities for us to find opportunities like that to manage costs. So on one hand, COVID-19 hasn't directly impacted it in an adverse way. If anything, it's allowed us or forced us to really rethink our whole cost basis and how do we make and manage that. So yes. So that's what I would say in terms of the overall view on costs. I did mention earlier to the extent that the -- while we're cautiously optimistic, the extent that the market does take a turn for the worse and perhaps a second wave comes, then certainly that could be -- there could be some revenue pressure that won't take us away from making the right long-term investments. So in a scenario like that, you might see some upward cost pressure in terms of the ratio. But overall, I think we're still managing it pretty well. Thanks.

Okay. Next, I'm going to combine the next 2 questions from Mirae Asset Securities from Jan and Rahul. What is your view on bad debt in the next 12 months? And similar to that is, could you discuss asset quality across the business segments and expand on what you mean by the -- that 7% of the book has been identified as potentially needing to be restructured.

Okay. I'll take that question. So on bad debt, so particularly on NPL, Bang has already provided certain guidance. So maybe I just want to reinforce that. That in quarter 1, our NPL is 1.1%, which is better than 2019 -- Sorry, let me just -- Yes. So our overall NPL remains at 1.1% compared to 1.3% in 2019. As Bang earlier shared, that we did accelerate some of the provisioning for bucket 5. The second question around asset quality. Maybe I just want to reinforce a little bit about the COVID-19 relief package, which has been announced. So yes -- so on Page 21, just to provide a little more insight on what kind of customers qualify for this package, which is obviously detailed in Circular 1. So I take on Bang, what we are looking at, both for individuals as well as corporate customers is we would like to support our customers who have been negatively impacted -- significantly impacted. However, remain in business, meaning heavy impact, but maybe in quarter 2 or even in quarter 3 in terms of lower profitability as well as maybe loss. At the same time, for business clients as long as they have the capital to sustain those losses, these kind of customers would qualify for the restructuring package. If we do believe the business is likely to go bankrupt, then obviously, we would accelerate the provision. So from that perspective -- and similarly for retail customers, it's -- most of our customers, as Mr. Hung has shared, our customers availing mortgage loans and they are affluent and mass affluent clients, whereby the quality of the asset is also pretty robust, and our loan to values are typically well below the industry benchmark. So we expect as of now and given the economy is opening up, our restructured book is expected to be at about 7% of our overall loan book. And we do expect that that these customers would go back to normalcy. As I have elaborated, the maximum debt rescheduling, which is offered as per Circular 1 is up to 12 months. The second question around, therefore, asset quality, where I want to talk a little bit about sectors. There are certain sectors, which were significantly hit particularly travel and tourism and international travel, given domestic tourism has started and very soon, we will be going into the holiday season, et cetera, there is significant government push to revitalize the domestic tourism. And the flights now between the various cities, particularly Hanoi, Ho Chi Minh are pretty much back to pre-COVID levels. So that's, again, a leading indicator of the domestic travel, which is expected to have a sharp rebound as well as domestic tourism. So from that perspective, our exposure, again, on travel and leisure as well as construction and materials is up to 11% of our book. A lot of the customers in these sectors when they have significant impact due to COVID, but at the same time, they still remain well capitalized, these exposures most likely will move into the restructured category. So from that perspective, as Bang has earlier shared, at this point in time, we do expect our NPL to remain within our risk appetite and up to maximum of 2% and we will be providing more guidance as the situation unfolds.

Can you expand a little bit on the 12 -- when you said that the maximum is 12 months in terms of the rescheduling?

Sure. So in terms of the support package, maybe I would like to elaborate further because we do get certain questions from our customers that what information do they need to provide to qualify. So for corporate customers, in terms of the information we do need is that, first, they need to prove to provide information that they have been significantly impacted. So if customers -- their sales turnover and the profitability remains at pre-COVID levels, then these customers do not qualify because they do not have any impact. Having said that, these customers who are profitable, we remain open for business. We continue to lend. So the package really is for corporate customers as well as individuals who have been impacted. So for corporates, it's typically reduction in sales or maybe a temporary loss situation in the quarter, but maybe for the full year, they still remain profitable. As per Circular 1, the maximum debt reschedule can be offered is up to 12 months, but we do see a lot of our clients, particularly where our exposures in the corporate business and in SME, our short-term working capital, we do have a number of clients who are seeking maybe 3 months or even up to 6 months of relief. There are certain clients who seek up to 12 months, but we do see most of our clients around the 6-month category. Similarly, in retail for individuals, it's, again, what they need to prove is that they have had loss in income or temporary loss of income or even lost their job. So for those customers, we would provide the relief package. As has been mentioned earlier, majority of our exposure is secured lending and mortgages. And it's backed by high-quality assets. And with that, we do believe that we expect to be within our risk appetite and our NPL likely to be below 2%.

Next question is from [ Nam ] BSHC. NPL decreased from 1.3% to 1% quarter-on-quarter. Could you explain how this is when we would have expected more stress in the book. Bang, could you please take this one?

I think we've been answering this question in a couple of different ways, but I'll go ahead and take it again. I think we acknowledged early on that we haven't seen as much of an impact on COVID-19 in Q1 and 1 of the reasons where we did see the decrease is accelerating the write-off of some of the bucket 5 loans. So by writing those off, our NPLs decreased. This is a situation, again, we're monitoring very carefully quarter-to-quarter. It's a reflection, again, of the actions the government has taken to really contain this. So we -- again, we haven't seen the same level of stress as Vishal had early indicated, but as -- I think second quarter, third quarter, we'll have a much better view and we'll, again, share that with you at that point. But as Hung had mentioned as well, just the overall areas in which we are focused, the sectors, the customer segments just has been more robust and resilient. And so again, there's a lot of -- in many ways, it's a bit of a lag. But at this point, we still are not seeing the same impact that again that others might expect us to see.

Yes. And Bang, to follow up with that, how will you account for restructurings under Circular 01?

Okay. Sure. So Circular 1 again basically allows banks to restructure extensions of loans, restructuring, repayment and so on, interest exemptions and really, the key is allowing it to remain in the same bucket. So during the time that it is in the same bucket or while there's some interest exception or reduction time from an accounting standpoint, it will be -- the interest related to the loan will be suspended in terms of the date of restructuring and be recognized on the P&L on a cash basis instead of an accrual basis. That will be back to an accrual basis once that restructuring period is over. There has been some questions, as others have gone to the SPV for a little bit of clarity around whether it is applied at the facility level or at the customer level, many banks, including Techcombank is applying this at a facility level. But I think the real impact is as we look at it, we still expect our customers to be paying interest at this point. I think certainly, the principal extension and so on, we are looking at it. But at this point, not seeing a significant difference when it comes to an accounting perspective.

Great. The next question is from [ Nam ], BSHC again. In the most recent quarter, LDR was close to the 80% regulatory limit. What is your plan going forward? And how will that impact your NIM? And does the syndicated loan recently announced address that? And Truong, will you take this one?

Yes. Okay. Thank you for the question. I would like to correct that actually the LDR limits has increased by the SBV from 80% to 85%. So we still have quite a bit of room here. For us, in this COVID situation, we would like to emphasize funding is actually -- funding and liquidity is 1 of the most important objective for us. So we are lucky enough also at the combined as a top bank in Vietnam, which we are able to mobilize a lot of funding from different sources. My colleagues talked a lot about CASA. CASA is actually a multiple of our number of customers and transaction with us -- the number of transactions with us. So when our active customer base increased, we increased CASA. This is also indicates our ability to increase term deposits wherever we want. So at the moment, in particular, in Vietnam market, we see different interest rate environments in term deposits, in interbank deposit as well as in wholesale customers, professional markets. So for us, in treasury, why keep and maintaining very liquid in this kind of situations? We want to diversify our sources of funding and to assure we take all the type of funding but at the same time, optimize our cost of fundings and basically achieve our NIM targets. So for instance, recently, we did a USD 500 million, as Bang shared with you earlier, a syndicated loan, this actually was basically upside from originally USD 300 million. And there's also 20 and more lenders actually commit to this deal. And we -- by this time, we already draw down the USD 500 million. So this is clearly a diversified source of funding with lower cost of funding, and this is helping us to increase our NIM. Yes. So once again, diversification and optimizing cost of funds for us.

Great. The next question is from Jennifer Passmoor at HSBC. What is the bank's current Tier 1 and total capital ratio at the quarter end? And could you also disclose risk-weighted assets? And related to this 1 is another question, but Bang, why don't you answer that first part?

Sure. I think it's somewhere here in our presentation. Is this -- yes, so Tier 1 and CAR ratio is 16.3% in terms of Tier 1 and 16.6% in terms of CAR ratio at the end of the first quarter. Risk-weighted assets, the VND 394 trillion at the end of the quarter, so that is up 10% year-over-year and down 3% quarter-over-quarter.

Okay. Just a follow-up to that is, you've spoken a lot about the strength of your balance sheet and CAR being 2x the regulatory minimum, how is this benefit for the bank? Or is it too much of a safety cushion.

That's a good question. So I think it's, in many ways, not so much a benefit of the bank. Clearly, we want to have a fortress balance sheet, but a lot of that is to support our customers. I think every bank has a slightly different philosophy and strategy around how they manage their balance sheet. We have been deliberately expanding and strengthening our balance sheet, particularly on the equity side over the last couple of years. So that is just an ongoing strategy for us. When we look at who we are benchmarking ourselves against whether some of the best-in-class, we've seen the Indian banks raise additional capital in this environment at a depressed stock prices relative to where they are for the exact same reasons. We've seen the same with a number of the Australian banks. So I would say as we prepare for the uncertain environment and certainly and importantly, to support our customers through that it's really having a strong balance sheet and having a liquidity position to do so. So I would say, no. I think we feel really confident about what we've done in terms of pursuing the strategy. I think our customers are probably very happy that we're in that position to be able to support them.

Bang, why don't you take this follow-on too, which is -- you mentioned the $500 million syndicated loan was part of the plan before COVID, but at a lower amount, why did the bank decide to increase the size so much? Are you concerned about the liquidity situation?

Look, I think in an environment like this, as Truong mentioned, liquidity is a priority. We've seen through past crisis, a lot of what gets triggered is liquidity. We saw that as markets froze up in the first quarter. I speak to a lot of my counterparts across the region. And first and foremost, on all of their minds is making sure they have abundant liquidity. We've also seen that in capital market transactions from a number of our peers and who we benchmark ourselves against also tapping the markets to provide liquidity. And importantly, as we look at corporates, we saw that not only in Vietnam context, as Vishal mentioned, folks pulling out liquidity to fund their business and payroll, it's all dramatically in other markets such as the U.S., where you saw corporates really tapping out their lines and certain banks certainly being prepared to handle that. So in an environment like this, I think having a surplus and abundant liquidity is incredibly critical and a priority for us, as we support our customers.

Okay. Thanks, Bang. We've heard reports of Vietnam's economy restarting. Could you describe how much of that has reopened and whether this had an impact on your customers yet. Vishal, will you take this one?

Sure. So maybe just a little bit of perspective, say, in -- up in February and early March, what we were really seeing is that there was probably a supply kind of issue where we saw a number of obviously, factories in China, et cetera, were under locked down and even supplies from Korea as well as Japan who are big suppliers and Vietnam is a big importer, but very quickly from March -- mid-March onwards, while the supply is opened up, the challenge was really the demand and the exports to Europe as well as the Western Hemisphere and particularly the U.S. So as we speak and as the situation evolved post the partial lockdown in Vietnam, what we have seen is that the import activity as well as domestic consumption, particularly for essential goods is picking up. And as Truong had shared that, there's a very high possibility that Vietnam in quarter 2 will still register a positive growth over quarter 2, 2019 of 0.1%, which clearly bucks the trend where most of the other ASEAN Asian markets and definitely the Western markets are likely to see a sharp drop. So the sectors where we have seen growth. In fact, in the COVID-19, we saw utilities and telecom as well as e-commerce has benefited. The trend towards digitization has further increased. We've done our part where we have supported a lot of our SME and micro SME customers to continue to sell online and not just transact, but we've gone beyond banking to support them through our partnerships to sell more online. Secondly, we have seen, with the resumption of domestic economy, essential FMCG and food and beverage within that was always open, but with restaurants, et cetera, being opened up, we've started to see the resumption of FMCG and food and beverage as well as restaurants. And now we are expecting from next month, domestic tourism to also open up. So the sectors, which, as we speak, which have real impact are on luxury goods and exports of luxury good where Vietnam has a very small percentage. Essential agri commodities exports have also rebounded. And certain other export-related sectors such as wood and furniture, where a large part of our exports is to Europe, there we still see some stress. But by and large, in summary, imports as well as domestic consumption activity, we see the resumption. Exports of essential goods, essential agri products, we've seen the resumption and exports of luxury as well as nonessential to the Western markets is where we still see certain stress.

Next question is from Worawat at UBS. What is the cost of the $500 million syndicated loan and -- after hedging? And how big would the proportion of USD loans be in your funding mix in the long term? And Truong, will you answer this one?

Okay. Thank you for the question. As Bang said earlier, the cost of the loan is LIBOR plus 150 basis points for us. So basically, we will use that proceeds in a very dynamic, depends being on our customer needs [indiscernible] Vietnamese dong. But let's say, if we [indiscernible] Vietnamese dong, this would be very cost effective, much lower as to 1% lower than our average term deposit for Vietnamese dong. So this strategy really based on for us.

Okay. Great. And I think we only have time for 1 more question, and it's a follow-up from Hyde, HSC, who wants to clarify. The 7% loan book that's potentially needs to be restructured. Does that include both debt restructuring and interest rate reductions? Vishal could take that one, please.

Yes. So thanks for the question. As per Circular 1, the relief package is applicable to customers, individuals and businesses who have been impacted with COVID-19. So in the restructured book, which we expect to be up to 7% as we speak, this only includes loans, which will be restructured up to a maximum period of 12 months. And for those customers, we would provide up to 2% reduction in interest rate. For our existing clients, where they have not been heavily impacted due to COVID-19, we remain open for business. And on a case-by-case basis, we always look at relationship-based pricing, and we might reduce their interest rates. But specifically, the 7% book is only the restructured portion of our lending book, where we will restructure up to 12 months and provide interest reduction of up to 2%.

Okay. So the answer from Mr. Vishal also ends our Q&A session for today. Once again, thank you for spending time and joining our analyst presentation of first quarter 2020 results webcast. If you have any feedback or questions, please send us via Investor Relations e-mail, [email protected]. We will keep you informed of our future events. We look forward to receiving your feedback and also welcoming you to our next event in the future. Our webcast event will end here. Many thanks.

Thank you, everyone.