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

Good afternoon, and welcome to our second quarter analyst presentation. My name is Bang Trinh. I am the CFO of Techcombank. By now, you would have received and seen our financial results for the second quarter, which we released in late July and reflected strong year-over-year results despite the COVID-19 headwinds. The objective for today is to provide you with more insights on how we see the business and operating environment, provide a summary of our first half financial results, discuss what we're seeing from our customers and how we're supporting them, and importantly, what we are doing to capitalize on the opportunities ahead. Joining me today for the presentation are a few colleagues I would like to introduce. On my right is Mr. [ Chung ], our Head of Treasury, who will start the presentation by providing an update on the macro and banking environment in Vietnam. I will follow with a summary of the highlights from our first half financial results and then onwards to Mr. Vishal, who is on my left, who is our Head of Business Banking, who will share more insights on our business as well as providing, again, an understanding of how we're supporting our customers during COVID-19 and beyond. Next to him is Mr. Tu, who will wrap up. Mr. Tu is our acting Head of our Transformation Office. He will wrap up by sharing an update on our ongoing transformation initiatives that will position us well as we prepare to execute on the 5-year strategy ahead. Before handing over to Mr. [ Chung ], I'd like to just make a few comments on the recent outbreak. After 99 days of no community spread there was an outbreak recently in the Central Coast city of Da Nang, which is a major tourism destination. The government and the country have taken a very quick response to this. and have really contained this similar to what we've learned from the first wave. So already, there's been social distancing measures that have been introduced across kind of different levels depending on where the outbreak has taken place. For us at the bank, we have reactivated our BCP and prepared to escalate further if the situation requires of us. I think the key for us here at the bank and for Vietnam overall is learning to live with COVID until there's a widely distributable vaccine available. What this means in reality and in practice at this point is being resilient and having the agility to manage through several phases of growth, pause, containment and restarting. And you'll see that as we discuss our business and results later today. With that, let me hand it over to Mr. [ Chung ], who will provide an update on our market environment and banking sector.

Good afternoon, everyone, and thank you, Mr. Bang. Yes, I'm delighted here today again to share with you our insight of macroeconomic situation in Vietnam as well as the financial markets. So as Bang shared with you, the Vietnam has done extremely well in fighting and containing the coronavirus situations and thus also translate into the economic results. So as you see in the charts, the GDP growth for Vietnam in the first quarter was 3.8%, whereas a number of countries in the region and in the world was negative territory. And even in the second quarter, when we had a lockdown in April, Vietnam still record a positive GDP growth. In the fiscal front, there are certain challenging situations as revenue drop and government expenditure increased. However, Vietnam is in a very good financial situation. The foreign country -- currency reserve is USD 85 billion. And the domestic currency reserve is about USD 23 billion equivalent. So that accounts for about 40% of our GDP. So it means that our government has a strong tool to support the economy and the business through these difficult situations. Also, the exchange rate in Vietnam has been very stable. This is very important for the country, as after the COVID, we do expect a lot more FDI and also that's also helped to control our CPI, which is July year-to-date, about 3.4%, well under the government target of 4%. Going forward, we do expect Vietnam economy to grow stronger in the second half of the year. Our assumption is the COVID -- the current outbreak of the COVID in August would be contained within this month. And then starting from September, we will have a more normal business activities. We strongly believe in that because our government take very strong actions in terms of contact tracing, quarantining, and mass testing. We see a strong growth in our exports for the first half of the year and especially in June and July, the export momentum grew by 5% and 8% year-on-year. So we do expect this trend to continue towards the second half of the year. The main driver for exports is the U.S. market, as Vietnam represent also a substitute to Chinese exports to the U.S. China, and also recently Vietnam, signed a FTA with the European Union. Another driver for our GDP growth is our high level of consumer confidence index and the growing middle-class incomes by about 23% per annum. So this -- in the absence of the offshore growth or international demand growth, then basically the CPI and the CCI, together with the growing in the middle class, would actually be very important for our domestic demands and the growth. Looking into the tourist industry, which is the hardest hit by the current COVID situation. We saw a big drop in the foreign visitors. However, we do see -- we have seen and we expect this also, the domestic industries -- domestic tourism industry to grow quite strongly in the second quarter, but also towards the end of the year. Another driver -- key driver is the residential real estate markets. The underlying factor is actually the growing demands for real -- residential real estate in Vietnam. With the prospects of GDP growth, also post-COVID, Vietnamese people still want to buy homes. And in the first half of the year, the supply was limited [ due ] some of the technical issues. But we do expect in the second half of the year, the supply will come back to support the current strong demands. So overall, we remain cautiously optimistic about Vietnam economy. We do expect GDP growth of 3.2% as per our current -- previous forecast, and we are even more optimistic about Vietnam economy towards 2021 and with stable CPI, stable exchange rate and a lot more rooms, rooms to -- for lower interest rate to support the economy and banking sectors. In terms of banking sectors, there are some very positive signal as well. The liquidity remain very strong. The reserve balance of the commercial banks are twice as the amount needed by the minimum reserve from State Bank of Vietnam. The NPL level stayed quite low, still -- even lower than last year. Currently, including the VAMC amounts, stands at 4.46%, and rescheduled loan as per the Circular 0 1 from the State Bank of Vietnam stand around 3%. So with that summary, I would like to hand over to Mr. Bang again, who will share with you in more details about the financial results of the combined in the first half. Thank you.

Thank you, [ Chung ]. And I think [ Chung ] has highlighted again, we're cautiously optimistic, all the signs would suggest again that the economy has remained resilient. And so that provides some context around the operating environment. as we go into a quick review of the first half results. Just before I go into it, again, all of this, over the last 5 years, has been underpinned by our customer-centric strategy and that has driven our results through the last few years and really has been validated through this first half of COVID-19 for 2020. And it's proven its resilience and really when you'll hear from Tu later, the investments we're making is to continue to improve our ability to be customer-centric from a people perspective, risk and operational excellence as well as data excellence. So all of these will underpin our ' 21 to '25 plan but continue to be very, again, key drivers of our business through the first half of this year. So when you look at our first half financial results, really, the low-risk, high-return strategy has continued to demonstrate its resilience. Our balance sheet growth year-over-year has been 10%. It has been a focus for the first half to be measured in our growth with a focus on maintaining asset quality and key metrics. When you look at our -- the key profitability metrics, whether on an ROA or RORWA, we are still very much in line with our recent historical figures, so roughly 2.9% on an ROA and 2.8% on RORWA. Looking at our CASA ratio, again, reflects the strong deposit franchise we have and low-cost funding that has also driven our net interest margin. On ROE, there's 18 near -- 17.6% with more room for uplift as we further leverage our balance sheet with growth opportunities ahead. Switching over to the revenue side. When you look at it, again, despite the headwinds from COVID-19, we have grown top line 30% year-over-year as well as profit after tax at 19% year-over-year. So very, again, healthy returns given the headwinds that we've been facing, a function, again, of the strong containment measures the government has put into place as well as just the underlying strength of our business. When we look at our credit portfolio, and Vishal will go into this a little bit more. Overall, it maintains -- it's a well-balanced and structured portfolio. The corporate segment continue to focus on the six economic segments that will serve the long-term needs of the economy, mainly on the consumer side. SME has been an area that has been more challenged and Vishal can go into that in a little bit more detail later. So we've managed our growth there through the first half. On the retail side, again, most of that growth will be driven by the need for home ownership, as [ Chung ] mentioned. So you've seen strong growth on that in the mass affluent segment, and we would expect that to be a continued driver of retail growth in the back half of this year and going forward. All of this is really to meet, again, the secular kind of growth trends and the needs, growing housing needs of our customers. The focus, as I mentioned earlier, through the first half was really continue to maintain strong asset quality. As you can see, our NPLs were 0.9% through the first half. Likewise, on the structure of our loan portfolio, still majority of it is secured, 94% through the first half of 2020. Bring this together, just in a quick summary, you can see that our financial results on a TOI was 33% year-over-year. Our profit before taxes, 19% year-over-year. Strong contributions from all of our core businesses. Worth noting is on the noninterest income side, very strong growth of 66% year-over-year. 1/3 of that actually came from a strong balance sheet management as well as opportunistic trading activities, which, again, together constitute about 10% of our TOI. It just shows the resilience of our business activities across different segments. On the OpEx side, we've been able to maintain and contain costs certainly in the first half as we've been managing through this uncertain COVID environment. So that is up 21% year-over-year. Specific provisions have been up on a relative basis compared to last year, but that has been very deliberate as we are actively managing our NPLs, taking the opportunity to write off nonperforming loans where it makes sense to do so given the market backdrop. Net interest margins remain healthy and stable. When you look at our overall credit portfolio, you can see, again, this is very much in line with this strategy of a rough mix between retail and corporate as well as corporate bonds. Lending rates have been fairly stable, actually a bit of an uptick through the first half. And then on the deposit rates, as [ Chung ] mentioned, there has been some compression there that our overall funding rates have been very low, and you can see that we've actually enjoyed an uptick, in the first half, of net interest margins. This all translates into net interest income. That is running 23% up year-over-year, a little bit ahead of our last couple of years' trend. And again, Vishal will talk a little bit more about that when he goes into what we're seeing from our customers. Net fee income is up 47% year-over-year, contributions from all different segments of net fee income. We have seen very strong growth in our bond business. There's been a lot of robust activity, both on the corporate issuance side, but as well as in terms of retail absorption. So our affluent customers are still looking for opportunities for yield and investing in bonds. Banca is an opportunity to continue to improve. We still had contributions there, had some impact in the first half through -- because of COVID-19 and being able to be in front of our customers. Tu will talk a little bit about some of the activities there that we're doing to help drive more contributions in a segment that we see significant opportunities to penetrate our customers going forward. And then -- but overall, I'd say between first quarter, second quarter, first half of the year, again, has seen a robust growth compared to last year. On expenses, an area that we've been -- have been and will continue to manage very tightly given this uncertain environment. Probably one of the big areas that we've been really focused on is managing our headcount growth, which is roughly flat to the year-end. So that will be something that we'll continue to manage as we head into the second half, but we'll continue to invest in bringing on people to drive our transformation as Tu will mention later, as well as in selected areas that are needed to support our customers in the front line. One thing to note here, we're now starting to see an increase on the depreciation and amortization. We've talked about this in previous quarters. It's a reflection of the investments we're making in IT to digitize the business, improve our risk management and support both productivity and efficiency gains. So as that goes up over time, we would expect to see some of the other areas drop down overall. I'll make a note on cost-to-income ratio. It has been managed very tightly for the first half of the year. We've really limited discretionary spend. A lot more limitations on travel, even managed marketing expenses, which may all actually increase in the second half of the year as the economy does rebound and we make these investments, and again are in front of our customers. So the second half, we might see an uptick. But again, we'll manage that based on what we see in the operating environment. Asset quality has been, again, an area of great focus for us in the first half and will continue to be as we look at the environment ahead. We have actively managed our credit costs as well as our NPLs. There has been an uptick in the first half compared to kind of low levels of 2019, but well within our expectations and risk appetite. Coverage ratio has increased. That does give us a buffer going forward. But overall, as you can see, we have managed expenses, provision expenses and NPL balances reasonably well. Vishal will go into a little bit more detail on where we've seen it and how it relates to the COVID impact on our customers. An area of strength that we've talked about in the past, and again, continues to be what gives us both confidence in moving ahead as well as the flexibility to manage the support of our customers or grow the business, is the balance sheet and our liquidity position. So our capital adequacy ratio through the first half has actually increased from year-end 2019. We're now at close to 17% CAR. I think the important number here on the left side is the leverage ratio, 5.9. We've talked about this in the past. It gives us a significant opportunity to leverage our balance sheet for growth. It gives us an opportunity as well to create revenue -- ROE uplift as we see opportunities to put capital to work. So that's something that we'll continue to focus on, again, managing the strength of the balance sheet, but also putting that balance sheet to work in support of our customers. On the funding side, again, liquid balance sheet. We raised $500 million. We've mentioned this in the first quarter, drew down on that in the second quarter in preparation for whatever the market environment would take place. So that provides us with sufficient liquidity to support customers and grow the business over the remaining balance of the year. Our liquidity ratios are all within SBV guidelines, very comfortable with it. And I think what we learned and continue to learn is the overall balance sheet, credit rating and reputation that we've had gives us access to a variety of different channels in which to raise additional liquidity, should we need that. So in wrapping up and looking at not just the first half, but over the last couple of years, we've extended our track record now to 19 quarters of year-over-year revenue growth. If you look at the first and second quarter, which are highlighted in red, you can see that the business continues to accelerate despite the COVID headwinds. Importantly, the net interest margin has remained both stable and high quality. The diversification of our revenues and percentage of noninterest income or nonlending income to lending income remains again, continues to give us diversification in our revenues. So overall, we see this as, again, a positive step to validate our strategy in and through the cycle. And it gives us a lot of confidence to continue to focus on the customer-centric strategy and the investments we need to make to do so. Now if we look at the second half, just to give an idea of -- from our position right now, how we're looking at the second half, we provided some thoughts on this in the first quarter, so just will update the audience here. On credit growth, given the containment measures that took place in the first half, we were seeing a lot more uptick in the resumption of business and potential possibilities for growth. Obviously, the recent outbreak creates a bit of a pause as we assess that and the government contains this second wave. But growth really, as we look at the rest of the year, will depend on our ability to continue to contain outbreaks when they happen. And also, again, for measured growth, depending on where our customers need support. So I think, overall, we are cautiously optimistic that we may be able to grow a bit faster than we had shared with you in the first quarter, but it is a question mark depending on, again, how we maintain our ability to contain the outbreaks when they happen. On net interest margin, the view remains the same, that we'll be able to maintain a fairly stable and healthy NIM through the back half of the year. The compression on rates has not impacted us as much. We already enjoy a very low-cost funding advantage through our strong CASA platform and our strong credit rating. So we do see our ability to manage that, as well as through our management of our banking book. Noninterest income, still see some pressure there. We did have a very strong first half when you compare it year-over-year, but there will be felt a lag effect from the lockdown. And again, some of the recent social distancing measures may create some challenges as -- for certainly some of the customer-facing services that we provide. Cost-to-income ratio, I mentioned already, first half was very tightly contained. Second half, we'll continue to make investments where we need to and spend where we need to, to support customers. So I do see a little bit of upward movement there by year-end. Then finally, on NPLs and credit costs, very much related. We've been managing it, have managed it very well through the first half. We will continue to proactively write off where there's opportunities to do so. But certainly, when you compare it against 2019 levels, wouldn't be -- I think the expectation is we'll probably be north of that somewhere as we head into the back half. So with that, in conclusion, really, it's been a strong first half of the year. We're excited about what we're seeing in the second half. I'll hand it over to Vishal, who will provide a bit more color, again, on what we're seeing at the customer level, what we're doing to support them both in COVID and beyond.

Thanks, Bang, and good afternoon to all. A pleasure to be here. Over the next 15 to 20 minutes, I'll aim to provide an update of our first half results across our three client segments: Retail banking, wholesale banking as well as SME banking, and also try and give our view of how we see the business in the second half. Starting with retail banking. As you are aware, our strategy has always been to focus on affluent and mass affluent clients, and we continue to drive the low-risk, high-return business. Our book -- our lending quality remains robust and 80% of our portfolio is mortgages. And these are largely primary mortgages, supporting our wealthy clients, our affluent and mass affluent clients to buy homes. Our unsecured portfolio, we had begun derisking about 3 years ago and a very small portion continues to be there, but our focus has really been on secured lendings, which is largely mortgages. Our mortgage book is mostly concentrated to affluent and mass affluent clients, where affluent is the lion's share. And our NPL for overall retail banking has been trending down, and now we are at 0.9% in the first half. So despite COVID, we have ensured that our asset quality remains robust in the retail bank. And despite COVID, particularly with the impact we had in social distancing in April, we still have recorded a year-on-year growth of 24% in retail assets. This is a chart which should be quite familiar to most of the analysts and audience here, which illustrates how Techcombank has continued to implement the low-risk, high-return business (sic) [ strategy ] as well as the value chain approach. We often get questions asked about our real estate and construction business and how much of that book is concentrated. This chart clearly shows that most of our exposure in the real estate and construction sector is at sell or deliver stages, where the risk is much lesser, as well as the risk weight ratios are sub-100%. Our exposure also remains well balanced between our wholesale banking clients who are large developers and key developers in the country, but about 50% of our exposure is to retail clients, who are affluent and mass affluent where the source of repayment is actually the income of our retail clients, many of those who are affluent businessmen as well as white-collared office workers. And one can see from this chart as well that compared to first half of 2019 and first half of 2020, we have stayed very much true to our strategy, where our focus has really been on sell and delivery as opposed to land acquisition or funding land acquisition for our large clients. With regards to our bond business, we continue to maintain the leading position, with 70% market share for corporate bond brokerage. At the same time, we continue to support our large clients who want -- who despite COVID, well executed their long-term fundraising plans to achieve their mid long-term needs. We registered an 82% growth in our bond issuance. And this was really, as I said, to support our large clients with their mid long-term needs and access the debt capital markets. At the same time, with yields being compressed and the trend globally as well as in Vietnam being of interest rate compression, our retail, wealthy clients continued to access our platform and the demand for bonds remained robust, and we have a 36% year-on-year growth in bond distribution through our investment banking business. We expect this trend to continue, both in terms of corporate clients accessing the debt capital markets as well as retail banking clients, affluent -- mass affluent continue to avail our bonds. This is, obviously, subject to the -- as Bang mentioned that recently, we've had an outbreak in Da Nang, and if the outbreak is contained within the central region, we do expect the strong momentum in our retail asset growth as well as bond origination and distribution to continue. Moving on to asset quality. And you may remember in the last analyst presentation, we did share details of our comprehensive COVID-19 support package for individuals and corporates alike. As of June 2020, about 3.6% of our portfolio is under rescheduled category. We do see only about 1.5% of our retail book. Most of it is mortgages where we are supporting clients to reschedule their mortgage installment payments, about 3.7% in business bank and about 6.1% in the wholesale bank. This is well within our earlier estimation of 7%. Again I must repeat, if COVID situation is well contained, we do expect us to remain well within our internal assessment and earlier assessment of 7%. In terms of providing a sector view, as you know, Techcombank focuses on 6 economic sectors and really consumption and investment-led asset growth has been our focus, where the sectors really drive consumption and investment growth. 44% of our book, our lending book as of 30th June is in retail. And within the 44%, as I had mentioned earlier, 80% remains mortgages and well secured. About 10% of our overall portfolio, we do believe, is in sectors which have been hit largely due to COVID. But clearly, the domestic consumption as well as domestic tourism has been bouncing back. And again, if the COVID-19 situation is contained within Da Nang, we do expect the recovery to remain robust. So about 10%, which is really construction materials as well as travel and leisure, is where we have seen certain challenges. And we've seen clients seeking the bank's proactive support on rescheduling their debt. Having said that, our overall NPL as a bank remains strong at 0.9%. Our internal appetite is sub 2%. So we remain comfortable where we are. And particularly in wholesale and SME, we remain sub 0.5%. In retail, it's at 1.6%, but most of it is backed by high-quality mortgages. So we remain well secured. So all in all, our asset quality continues to be robust, and our exposure to hard-hit sectors is well within our internal risk appetite. Moving on in terms of our strength of our balance sheet, as Bang mentioned, and particularly the fact that as Techcombank, we have one of the best CASA ratios in the industry, which gives us really low cost of funding. And we continue to have strong CASA ratio of 34.4%. Clearly, the retail franchise led the growth in CASA at 52% year-on-year. We clearly saw in quarter 2 with the partial lockdown in April that most -- clearly customers were consolidating their balances with us. And we also saw term deposit rates go up as well as the demand for bonds increased. Our CASA per client also remains extremely healthy. And with the situation, we did see 45% of our term deposits are now originated online. We do expect this trend to continue. So clearly, the low cost of funding really has ensured that we continue to have strong NIMs on our lending business. In terms of digitization, which is a story we are, at Techcombank, extremely proud. We've continued our investment in upgrading our digital platforms. And we recorded, again, a new high of 3.2 million retail banking customers who are now registered on our e-banking platform. That's a stellar 61% growth. We also witnessed not just increase in new customers and existing customers registering for our retail banking channels, but also they are clearly transacting more on our platforms and continue to avail the zero-fee proposition as well as 1% cash back on our debit card. And also our transaction value keeps going up. So we've had 91% year-on-year growth in our overall transaction volumes -- sorry, value processed through our platforms. which is really fantastic. And despite COVID, we clearly are seeing that customers clearly are adopting digitization at a much faster pace and really treating Techcombank as the main operating account for retail. In addition to our platform enabling payments, domestic payments, we had launched the capability late last year around online credit cards as well as online term deposits. And with COVID and the partial lockdown we saw in April, we've seen this trend -- in fact, we clearly see the trend of adoption of online, not just for transaction, but even for new product offerings. We have 38% of our cards now, which are coming through online banking and 44% of term deposits. We do expect this trend to very much continue. Another very strong performance one can see on this chart, is that in first half, we processed as a bank for retail -- in retail banking, 282 million transactions, which is almost equal to what we have processed in 2019. So clearly, this just shows the value of our franchise, that we are acquiring new clients and even our existing clients are increasingly adopting our technology and consolidating their balances and really using us as their main payment bank or main operating bank. And with that the transactions, which are now processed through staff-assisted or human-assisted channels, which is the branches, is now fallen off to 6%. And clearly, we can see this trend sort of continuing. Similarly, 78% of our volume now is through online and mobile banking, which clearly puts us as one of the leading retail digital banks in the country as well as in the region. So one must be wondering, how is the story on the business or the SME side. It's equally strong and stellar. We have registered 13% year-on-year growth in our active customers in SME and 81% of our active SME customers are now active on the channel. This has happened just in a span of under 5 years, where in 2016, we only had 20% of our customers' SME clients leveraging online banking. And now we have 81%. Our aim is that over the next 2 years or so, we should have more than 90% of our clients who are digitally active. And clearly, this is a trend which we see due to COVID. And once the clients have adopted digital, we do expect them to continue. At the same time, just similar to retail, we had our corporate clients. We acquired -- our new client acquisition was strong. At the same time, we continue to deepen and our customers continue to leverage online banking, our Fast e-bank platform, and 73% of our payment transactions are now processed digitally. And in terms of value, it's 55%. So clearly, the zero-fee proposition where we were the pioneer led the way, but with COVID as well as our continued investments in digital and our continuous enhancement of the platform, we have clearly been able to acquire clients as well as deepen clients. And increasingly, we see clients adopting digital technology. And with that, Bang made the point, we've been managed to contain our cost as well as our headcount. So really, the productivity per employee continues to remain strong. Lastly, in April of this year, we had a soft launch of what we call BusinessOne. It's a first of its kind digital bundle for SMEs and in June, we had the full launch. In 2018, we had launched a zero fee for our corporate clients, and we led the way, and we see many commercial banks deploy the same. So we clearly conducted a survey and through the voice of clients, what we noticed is that the customers, obviously, very much like our zero fees, but they expect more from Techcombank. And therefore, we launched BusinessOne, where our CVP is three-pronged. First, we help our customers save cost. Number two, the platform is convenient, and it's 24x7 accessible and last but not the least, it's safe and secure. So in terms of the 3 pillars of the CVP, let me give you a few proof points. First, we continue to offer unlimited zero fees to our retail as well as our SME clients. And this proposition is specifically for SME. As I had reported in the last analyst presentation, we enhanced our Fast e-bank platform, and we added functionalities in terms of overseas remittances as well as FX buying and selling. So now with customers, if they initiate overseas payments through our online banking platform, we give them 50% discount. And we have also launched a first of its kind corporate business debit card, where we give 1% cash back, which is very similar to our retail proposition. And we are clearly seeing strong pickup. In terms of convenience, the customers can sit in the convenience of their office and buy and sell foreign exchange and they need not call our dealers. And clearly, we have tiered pricing. So the more business they do with us, the better the price. And last but not the least, obviously, we have two-factor authentication as well as multiple authorization metrics for our large clients. So in terms of performance, having done the soft launch in April, in June, we had 2,000 new registrations for BusinessOne, which included a lot of our existing clients as well as new clients. Having said that, in July, which is where we are personally proud and really honored and a big thank you to our clients, we had 4,000 SMEs register for BusinessOne. Of the 4,000, we had more than 2,000 new customers. So clearly, we've gone a notch above from above and over beyond zero fees, and really with the first-of-kind digital bundle, we are well positioned to continue the strong growth. So all in all, just to summarize, in terms of the business performance. We've had a strong first half. Bang mentioned that we have 30% growth in TOI, 19% growth in profitability. If the COVID-19 situation is well managed, we do believe that we will continue to have a strong performance in second half and clearly, with the domestic economy largely being open and also with the recent signing of the European FTA, we do expect exports also to improve. And we will continue to adopt our low-risk, high-return business model, continue to deepen our clients. And obviously, we see stellar results in terms of acquiring new clients. So we are well set to deliver a strong second half performance. With that, I'd like to hand over to Tu, our acting Head of Transformation, who will share further details about how we will be deploying digital journeys, digital customer journeys and future-proofing ourselves so that we can sustain this growth momentum over the next 5 years. Over to you, Tu.

Thank you, Vishal, and good afternoon, all. Techcombank's great financial story is a result of the prudent decisions we've made in the last few years. And so today, I'll be sharing with you some of our thinking and decisions that we are making to set the growth for the next 5 years. Specifically, I'll be talking about the approach that we would take to thinking about the transformation, the progress that we are making and examples of where we're seeing some [ audio gap ] second half to help continue the development of the bank in the next 5 years. So when we think about and look back at what the bank has done, there are three phases: Build, upgrade and accelerate. On the build phase and the upgrade phase, we've put in place some of the foundations around people and organization, foundations around infrastructure, and that includes data, technology and operations. Now in the third phase, our accelerate phase, we will focus on investing a lot more into our digitization of our customer experiences and rolling out agile implementation, particularly inside our new transformation office and then to the rest of the bank, while we'll also continue to be disciplined about how we approach our financial performance management. To give you a sense of our aspiration, I would like to share with you some of the big numbers that we're looking to deliver in the next 5 years. If you think about our customer engagement, there are three parts to it: Sales, transaction and services. If we think about sales, we are currently operating at about 20% of sales through our digital channels, and that is new sales, up-sell and cross-sell. And we're looking at taking that to 70% of sales within the next 5 years. This number means that there will be end-to-end experience for our customers without a single staff interaction. Second, on transactions, we're already at 60%, as Vishal mentioned, and we're looking to take that to 90%. We've made good progress in the last 3 years as we've moved more transactions online, but I think there's more opportunity for us to push the boundaries on this and get it closer to 90%. And as of the first half, we've already done 78%. And finally, all the different services and maintenance activities that customers can do with us, we believe they want to do that through our digital channels. And so we will move up to 80% of those transactions online. So what does this mean for our customers? Well, they can engage with us through the channels that they want, when they want, how they want. And this will mean we're giving them a lot more ease. It will be simple and require minimal effort. For the bank, what does this mean? So once again, I'd like to reiterate that we are providing directional aspirations. So for example, with our account opening, we want to have 90% of our accounts opened end-to-end online. We want to issue 80% of credit cards end-to-end online. And we expect to move a significant amount of traffic out of our physical channels. This will help drive revenue and also lower our operating cost to serve. So how are we going about doing this? How are we structuring and how are we organizing ourselves to make sure we can deliver on the digitalization for our customers? So from the beginning of this year, we started the process to put in place and operationalize our transformation office, also known as TO. TO's responsibility is to partner with our existing businesses to deliver greater customer experiences through a new way of work that is centered largely around redesigning our end-to-end customer journey, and delivering the customer journeys through an iterative, agile methodology. We are very serious about this investment, and have at this stage over 250 people inside the transformation office, and we expect to add another 200 people by the end of the year. This makes us one of the largest head office divisions and also have the responsibility of helping to drive and accelerate the transformation. So how are we organized? So TO is organized as cross-functional, co-located teams with a single objective of creating a differentiated and compelling customer experience. The first half of the chart you see at the moment is the teams organized around customer needs and journeys, such as their protection needs, their ownership needs, the investment needs, and this will apply for both retail and corporate customers. The second part that we're structuring are the enabling teams. So that is enabling capabilities around data and analytics, technology and risk that are required to help us deliver on the compelling customer experiences. So now that we are set up, the second half will be about embedding this division to the bank and ensuring we are ready to support the execution in the next 5 years. So if I can go deeper to give you some more insight into how we are thinking about it. We've put in place a comprehensive framework that allows us to rethink about how we structure the division. This way, it will allow us more freedom for our teams to collaborate and increase the empowerment to make decisions earlier and faster. On the people side, we've identified the roles that we need to operate in this agile method. And we've looked at putting in place 80 new roles to facilitate this change, a capability framework to lift the skills of our people, as well as new performance management to enable them to be working towards a single goal. In terms of processes, we've put in place new agile process to allow us to set up the teams, run the teams and also remove some of the constraints around access to capital. For example, we've simplified the business case process to allow the tribes and squads that we're setting up to access their capital earlier. And in terms of technology, we are rethinking the way that we approach technology so that it can enable us to deliver on new and more compelling experiences for our customers without some of the constraints that we had previously. On the right-hand side, you'll see the progress that we've been making against the six tribes that we've set up. We have two large tribes, have been running for a little while now, and they've moved through the planning, setup, exploration and are now well into delivering real value for our customers, and I'll provide more examples of what they've done. And then we have four other tribes. They're FMCG, insurance, everyday banking and corporate omnichannel that have been set up and are now doing prework and analysis to put in place the plans for us to execute on those new journeys in the second half of the year. Specifically, on the insurance side, we're looking at how do we use technology so that we can build an end-to-end insurance journey, that allows our customers to engage with us when and how they want to and also to look at new solutions that allow us to be able to still serve the needs of our customers without having to always rely on a face-to-face interaction. So what are the early results that we're seeing? So if I may go down to 2 examples. So the first one is for our retail omnichannel. So I'll use digitalization of cards as an example. So at this stage, 1 in 3 new cards issued are now done end-to-end through our digital channels. And as I mentioned, we expect to continue to move this number higher over the next 5 years. In terms of card services, we have continued to move these services to become fully self-service. We've seen more than 80% of card pin resets done through the mobile app, 95% of our lock and unlock. Combined with the other services that we have put on to our digital channels, we've estimated in the first half alone we've saved 5 million minutes of SUT, and that's an equivalent to VND 20 billion in cost savings for the bank. And as we continue down this path with other products, we will also expect to see more cost savings for the bank. On the mortgage side, what we've done is redesigned the mortgage journey, including centralizing our mortgage processing. What this has meant is that we've helped our bankers become a lot more productive, seeing big increases in their productivity, and also a reduction in the time it takes to process mortgage applications. For our customers, it has meant that they are receiving a significantly better experience, and this is represented through our NPS scores, which we have started tracking at the moment of 55% to 60%, and we have plans in the next half to continue to increase this number. So what does it look like for the transformation office in the second half? Now that we've been set up, we want to build and deepen the capabilities to ensure we are ready to support the transformation of the bank in 2021 and beyond. So there are 2 groups of capabilities that we're looking to put in place. The first are the enabling capabilities of data and analytics, technology and risk. Within these enabling capabilities, some examples I'll highlight are: having in place a single source of truth database; more data governance, data privacy models; putting in place micro-services architecture and DevSecOps processes to speed up our technology delivery; rethinking our approach to risk, putting in place more modern risk models and systems to enable us to provide better lending solutions; and underpinning all of this is the capability around building innovation as a culture within the bank. So to do that, we are scaling our agile framework, putting in place all the different [ cadens ] and tools that will allow Techcombank to continue to operate faster and make better decisions earlier. We're putting in place digital partnerships so that we no longer have to build everything in-house, but we'll partner with the right fintechs and organizations to help deliver on a better journey. Also on the innovation side, we are rethinking the experience for our customers through the digital channels. As much as we've had a lot of success in the last 4 years, our platform at the moment -- we're seeing opportunities to continue to upgrade and improve. And we will continue to invest in that in the second half, to create better omnichannel experiences for our customers. So these capabilities will start definitely in tier, and then we will scale to the rest of the bank. And this will help us accelerate our execution and ensure that, first, we deliver market-leading and compelling experience and value proposition. Secondly, we continue to migrate activities from our physical channels to our digital channels, driving revenue growth and cost reduction and efficiencies. We will extend our competitiveness in digital banking, and we will remain a leader in the banking sector in Vietnam. So to close, on behalf of my colleagues, I'd like to reiterate. Techcombank has had a very strong first half across our core business, despite the impact of COVID. We are confident in the Vietnamese Government and our leadership team's ability to manage the ongoing impact of COVID for the second half. We have a clear agenda for the second half, including putting in place a new strategy and a transformation road map to deliver on our growth. And finally, we are committed to adopting and embedding a new way of work to ensure we have a sustainable, customer-centered and digital-ready business platform. So this concludes the formal part of our presentation. We'll take a 10-minute break before we have Q&A.

Yes. Next part of our event will be the Q&A session. So before moving to Q&A, please take a short break. During the break, please kindly spend a few minutes to scan the QR code and complete a short survey. If you have any questions, please type in the survey or send to our IR mailbox [email protected]. So we will come back in 10 minutes. Please stay tuned. Thank you. [Break]

We've got the survey and gathered some of those and add on to the questions that we have.

Okay. So the first question will be for Bang, and it's from Mr. [ Tang ] from [ Curriculum ] Investments. In the fee income, there's a trust agent service increased significantly in Q2. Can you further explain what that is as you spoke about the 47% increase in NFI?

Sure. Let me flip the presentation to Page 16, if you would, please. Great. Okay. So how we -- we look at it a little bit differently on this page versus the financial statements. But net-net, the -- most of those fees are related to our bond business. And that's related to our management of our bond business. So you get bond fees, up in the red, 290 to 259. So you saw a big uptick there. And [ then ] it's related to kind of a bit of a lag as we complete some obligations we have with listing via the public offering of the bonds, and are able to collect fees in terms of managing the listing. So this -- again, there's a bit of a lag because it typically takes about 3 -- about a quarter or so to complete the listing. And in that period of time, we're usually accruing this fee over the life of the bond. But as soon as that's done, then we can recognize the full amount. So that's where you see the big uptick.

Okay. And as a follow-up, from Thanh from Maybank's asks, why was Banca down in H1? And have you seen any rebound in the second quarter and carrying into the second half?

Do, why don't you take that one?

Okay. Thank you. I might take that in 2 parts. So the first part is we've definitely seen a reduction in our Banca numbers, both across our FI and APE numbers. So FI is down about 15% and APE is down about 30% quarter-on-quarter. So there are a number of different reasons for this. So one is, as we saw COVID start to increase in Vietnam, we had a lot of people preferring not to go into branches. And with the lockdown, that also meant it was a lot more difficult to get walk-ins. And without the walk-ins, it means that we lose opportunity to engage with our customers to be able to work out what their protection needs are, and then offer them the right solutions. Another reason is that as we start to see more of our Banca numbers improve because our competitors are starting to go a lot more into this Banca space. So we led the space in 2016. And from our lead, our competitors are now going in, and they're putting in place different propositions. So we now see an opportunity to invest in a new product to allow us to also increase our proposition in this space. So it's a big opportunity for us. And a week ago, we put in place a new product called investment-linked product. And that product, even though it's only been in the market for a week, is starting to see some good progress. And the third part is, if we think about our front lines capability, we've moved towards a direct model for about a year now. That direct model will start to stabilize. As we stabilize the direct model, where our frontline can engage with all our customers to identify or offer banking solutions, we will continue to increase the training for these customers for our -- to make the customer relationship better. And that engagement will increase participation of our frontline staff as well as also their effectiveness. So that's the first part. I think longer term, what we're expecting to see as well to address some of these concerns is, as I mentioned in the presentation, we will look at rebuilding the end-to-end banker journey and experience for our customers. And through digital applications, looking at creative ways to drive customers to our channels as well as looking at putting digital-only products through the channel, we will continue to look at growing our Banca numbers in the second half and beyond.

Thanks, Do. Another follow-up question for Bang from VNDIRECT. The other part of the NFI was more than triple in the quarter. So could you explain that growth?

Yes. So again, I mentioned this in the last answer, which was, again, related to the delay in recognition of -- well, it went from accrual to being able to recognize the full fee. So that 95 to 360, again the majority of that is related to our bond agency business. So that's where it has, again, been recognized fully once we complete the listing process for the bonds.

Okay. Thanks. The next question is from [ Lin ] from SSI, and it is on the bond restructurings under Circular 01. Maybe I'll ask Vishal to take this one. How much loan balance has been restructured under Circular 01? And could you talk about the breakdown by segment?

Sure. Thank you for the question. So as I have mentioned in my presentation, about 3 -- as of 30th June, 3.6% of our loans are currently rescheduled. We do -- and this is across wholesale, business bank as well as retail clients. Most of our retail clients exposure is backed by mortgages, secured loans. And in the business bank, most of these loans are short-term loans. So we -- so as of now, to answer the question, 3.6% of our overall loan book. I also mentioned earlier in my -- during my presentation that if COVID situation, the recent outbreak in Da Nang, is confined to central Vietnam, we do expect to remain at these levels, yes.

Okay. And amongst the wholesale and SME customers whose loans were restructured, which sectors accounted for the largest portion?

Okay. So in terms of our sector exposure, as noted on Slide 27 of the presentation, we do -- we are well diversified. Our strategy has always been to focus on the 6 key economic sectors which have driven the growth of the GDP, 3 of which are consumption-led. The other 3 are really investment-led. So specifically on the question for business banking or SME and wholesale in terms of the customers coming from the specific industries. For business bank, we have seen the customers are largely from FMCG. But within that nonessential food and beverage, where we did see with the partial lockdown imposed in April, obviously a lot of the restaurants, et cetera, were closed. And then obviously, people are a lot more cautious. And also a lot of the discretionary spends, particularly around nonessential food and beverage including consumption of beer, alcohol, et cetera, that has obviously been hard hit. So that's the first sort of category. The other category of customers are subcontractors, [ stroke ] suppliers to our -- to large contractors as part of the real estate value chain. In those what we have seen is that given the cash flow constraints and some of the large property development being delayed due to COVID, again, it's largely during the partial lockdown. We do see some of the cash flows being constrained and inflows coming in from their buyers who are the large developers or contractors being sort of slowed down. So that's another category. So these are really subcontractors or suppliers in the real estate value chain. So that's in the business bank or in the SME space. In wholesale bank, again, our exposure is at about 6% for a wholesale bank. Within that, again, the largest is in the real estate construction sectors. I would like to report that none of our large rainmaker clients, or the key large corporate clients, have had the need to reschedule their debt. So these are really the non-large rainmaker clients, which are typically large local corporates, and they are from the real estate -- or these are large developers or contractors, where again, to ease their cash flow, they have sought for reschedulement. We have a very small exposure, as noted here, on travel and leisure. And we do see some of our travel and leisure clients also seeking rescheduling. So hopefully, this gives a flavor of -- across retail business banking as well as wholesale banking in terms of the sectors and subsegments, availing restructuring. Having said that, I want to reiterate that we are at 3.6%, which is well within our earlier assessment of up to 7%. The overall banking industry rescheduling, as Chung had mentioned earlier, is at about 3%. And we do expect this to sort of -- in our estimate, if COVID outbreak remains contained in Da Nang, this is probably at the top end. And we do expect, even if COVID sort of -- the outbreak is not contained, we -- as of now, our assessment is that we will remain within our earlier assessment of up to 7%.

Okay. A few follow-up questions here on the same topic. Hoa from BVSC wants to know on the interest, how -- what is the potential for collecting interest post the rescheduled amount? And how much -- how many loans were interest rate reduced?

That's a great question. First, let me respond specifically on the point on interest. I would say we have a very, very small single digit in terms of number of customers where we have waived interest. And these are really retail banking customers. So that's the first point. The second point is that we do expect -- and in fact, what we have seen is a number of our clients whose exposure which was rescheduled, which were short-term loans, particularly in retail and SME, have actually -- as their cash flows have eased up, are proactively paying interest as well as the principal on time -- or rather, sorry, ahead of the rescheduling time. So a lot of our clients were just prudent and basically had worked with the bank to make sure that their cash flow in case their -- the cash inflow, the sales would be impacted, really for SMEs, and incomes in the case of retail banking clients, had sought the rescheduling. And we are seeing a lot of our clients actually paying the interest obligations for sure, but also the principal ahead of their original due date as per the rescheduling terms.

Okay. One more seems to be a popular topic here. What loan bucket or loan category were most of these loans that were restructured under Circular 1 before they were rescheduled?

Another great question, and very deep question. So in terms of risk management as well as business management, all these loans were in bucket 1, which we describe as regular loans. And customers and bankers, our bankers alike, proactively worked and made sure that while that obligation is current, and before the loan installment or the obligation goes into bucket 2, i.e., more than 10 days past due or overdue, these loans have been restructured. So the loans which have been restructured -- sorry, rescheduled are from bucket 1.

Okay. Next question is for Mr. Duong. This quarter, and in other quarters, the bond business has been an important contributor to Techcombank's results, especially given your very high market share in this area. Could you discuss the upcoming changes in regulations in terms of the investment Law and Decree 81 around bond issuance and sales and how this will impact the bond market and specifically Techcombank.

Thank you. This is a great question. I must say that this new approach from the government doesn't really surprise us. We see this as part of the development of the debt capital markets where we expect the Vietnam [ makes ] the debt capital market to reach higher standards in the future. The new regulations along -- actually, the amended new security law starting first January next year, and also revisions of the current Decree of #163, this actually targets for the improvement of the public offering as well as the control of the private offering of bonds. So definitely, this is the new situation. And there will be adoptions and changes to the new situations. At the combined, as I mentioned, again, this is not -- not to our surprise, and we think we are well prepared. And as Techcombank has always been dealing with a customer of high -- issuers of high qualities. So we expect this not to be a major issue for us. In terms of investors, with our affluent customers, we also work with them and our internal frameworks on customer suitability, so that we can certainly classify many of them to the category of professional investors. So again, this approach from the government is expected, and it will be a good and for sustainable development for Vietnamese corporate bond markets.

Okay. And just a quick follow-up on that is, what is the impact -- I guess maybe could you clarify a little bit more on the impact to issuers, and whether the customers of Techcombank who have been buying these bonds, what is the impact and implications of this?

Yes. Okay, in a little bit more details. So basically, the new regulation required public -- for public offerings, an issuer needs to have a credit ratings. That's the new thing. The issuer, of course, needs to have approval from the securities commissions, and then the public offering should also be listed. This is also a new requirement, right? So basically, it requires more work for issuers, but also it means more protections for investors. Yes, in terms of investors, then for investors investing into bonds then basically for retail investors, it has to -- for private placement bond, it has to be classified as a professional investor. So thus, we have to either have a certain security certificate [ or ] completions, certain income threshold or certain investment threshold. So these are perhaps the key changes in terms of issuers and investors impacts.

Okay. Great. A question for Bang. Andrew of Halo Global Asset Management asks, do you have a medium-term target for CASA ratio, as I would assume today that it's at a level above the market was anticipating 12 months ago.

Thanks for the question. Just as a headline number, CASA deposits grew 29% year-over-year from VND 80 trillion to VND 86 trillion. Vishal had mentioned earlier, in many ways, customers are still putting their money and trust with Techcombank. And it's a function of the services we provide as well as just, I think, the reputation we've built up over the last couple of years. In terms of CASA ratio, I think there's still room for increase. Part of it is just the secular trends that we're seeing, the move towards cashless and moving more and more monetary kind of the cash into the banking system and -- which is a reason for the push that Tu mentioned in digitizing and being able to, again, hopefully, over time, winning more and more customers in terms of having us as their primary transaction bank. So I think the short answer is there is more room. We don't necessarily have a particular target. I think it really fits within the overall strategy of making sure we maintain a very strong and healthy deposit franchise, which obviously contributes to lower cost funding, and we do see room for increase in the coming time.

Okay. Follow-up on the same topic from Ian at KIS. Did Techcombank significantly reduce deposit interest in July? And sort of related to that is, how is it that Techcombank is still increasing CASA in this period while other banks are seeing CASA decrease? And also, just directing this towards Vishal, maybe you can discuss the behavior of customers in the -- during the COVID and after.

Sure. So clearly, I think the broader trend across the globe as well as here in Asia and Vietnam is that we are very much in a low interest rate environment. So in line with that environment, obviously, major banks in the country have reduced their term deposit rates. Having said that, we have maintained fairly competitive rates. And our online TD rates continue to be stronger or better than over-the-counter. And with that -- yes, on this chart slide, you can see that our customers have switched more to retail online TD. So 44% of our TDs, term deposit requests are now coming online. The second question was around CASA growth. So fundamentally, CASA is a transaction product, whereas term deposits is where customers would park their surplus liquidity. And as I had earlier mentioned in my presentation as well, that given we are one of the largest bond distributors, we do -- we are seeing customers who are seeking higher yield, switch some of their funds from term deposits to bonds. So specifically on CASA growth, there are various factors which are driving the CASA growth for the bank, particularly in Retail Bank. First and foremost, we now have 3.2 million retail customers who are now registered on our e-banking platform. Less than 5 years ago, this number is only 0.5 million. So it's a stellar growth of 20x just under 4 years, and then year-on-year growth is at 61%. Number one. Number two, Bang also mentioned that our customers are leveraging our channels a lot more. They find our platform convenient. They like the 0 fee proposition, and they keep consolidating their payments through Techcombank. And therefore, we have seen our transaction volume as well as value far exceeding the number of new customer registrations. What that means is that our existing clients are ensuring that they consolidate a lot of their daily sort of transactions with us, which has resulted in the growth of the current account balances they keep, or the free cash flow, if you will. At the same time, parking their surplus liquidity through online TD as well as bonds. At the same time, the new customers, we see a significant uplift in our new customers. As you can see, 61% growth in our e-banking registered customers. And these customers are active, which are also driving a lot of increase in the overall transaction volume. So in short, the CASA growth we are witnessing is really on account of our strength in terms of customers moving a lot more to digital, leveraging Techcombank as the main bank. At the same time, we've had the ability, despite COVID in quarter 2, to continue to acquire a sizable number of new clients. And that's the reason we continue to see strong CASA growth.

Okay. I might just add on some additional points to what Vishal said, just to go deeper into the behavior side. So if you think about our CASA story in the last 5 years, when we put 0 fee up in September of 2016. The proposition was new in market. It was a novelty that drove a lot of foot traffic into our branches. So that help us improve the CASA numbers in '16, '17. But once those customers were there, we couldn't just stop there. We have to continue to invest to give them more value in those channels to make sure that they can continue to stay. And so that's what we've done in the last 2 years, and more so in the last 6 months to say, hey, why don't we give you 95% of everything you ever need to pay through the channels. So we've connected to electricity providers, water providers, schools so that customers can now through our channels stay engaged, stickier. And then a secondary behavior that we're seeing that's also driving this engagement is those customers that got onto the platform, saw value in that, saw the convenience. They're also now referring their friends, their family. So it's creating this nice little ecosystem that's also driving this increase in the number of [ CASA for ] our customers. And as such, we think the stickiness of the CASA number will continue to persist for quite a long time into the future and will sustain our CASA growth, compared to maybe our competitors who are late to the game and are now playing catch-up and haven't benefited from having those customers engage with their platforms, build the stickiness and also do the referral. So I want to just reiterate some of Vishal's point that I think we've done a good job in this space, and by increasing engagement and continuing to invest in digital, we will continue to see more customers use it, more transaction volume and also higher CASA numbers into the future.

Question for Duong, from Andrew at Halo Global. There was a very large gain from investment securities in the quarter, as well as lower provision expenses for investment securities. Are these gains sustainable in your NFI?

Yes. Thank you for that question. From that amount of gains, there are certain parts from trading of government bonds, and some parts is actually rotating from our balance sheet from our liquid portfolio. So the good thing for us is this is part of our balance sheet management. We -- as per our strategy in this COVID situation, we have big amounts of surplus funds. So when we see it is suitable, we can buy into government bonds. We also have very low funding costs, so the carry of the government bond was okay for us. But when we saw -- when we see necessary for a rotating of the bond in the balance sheet portfolio, then we also did it. And thus, as a result, was the profit. Of course, this is not a core business for Techcombank. But it did happen, and we have made this in the past few years successfully. Yes.

Okay. And Duong, maybe you can answer this one too. There's been media reports that a lot of banks have gotten increases in credit growth from the state bank, upwards of 20%. Has Techcombank also got an approval for a higher limit for the year versus the 13% target that was given at the AGM?

Yes. The answer is yes, we have received approval from State Bank of Vietnam for higher growth credit limits compared to the one given to us at the beginning of the year. And I can say -- what I can say is Techcombank is among the top tier banks, which is allocated with the highest amount of increase in terms of credit growth limits. And this would give us a lot more flexibilities in terms of growing our balance sheet. The good news is that also we are having a lot of surplus funds. So if we would continue to monitor the market conditions, macroeconomic conditions, the COVID situation, and then we'll decide whether or not we're growing aggressively in this situation. But the good news is we have a lot more flexibility in terms of funding and lendings abilities. Yes.

Great. A follow-up for Bang, a lot of people voted for this question in the survey. The credit growth for the first half has only been about 2.7%, and actually it was down a little bit quarter-on-quarter. The original limit of 13% that was given at the AGM, and now what [ Anh ] Duong said is even a higher limit that was approved, could you talk about how the bank can achieve that credit growth given the low growth in the first half? And how you will achieve that growth in the whole year?

Sure. That's a great question. As we've shared -- or actually, we demonstrated in the past, the credit growth from quarter-to-quarter can vary quite a bit. A lot of this, again, is a function of where the customer needs are, their planning through, call it, the cycle or the year. If we look back, for example. And then obviously, the operating environment, if you look back a few years, there had been some delays on some customers with large real estate projects, and that impacted some credit growth on the mortgage portfolio side. A quarter or 2 later, that was addressed, and we saw significant growth in credit over the quarter. So I think a lot of this is a function, again, of fundamentally where the customer need is. We've shared in the past, and again just reiterate now, that the focus of the bank is on areas that experience and will experience long-term secular growth trends, really focusing on the consumer. I think through this COVID period, we've seen that, that thesis remains intact. As we've seen, again, the bounce back in customer demand for mortgages kind of coming into the second quarter and beyond, and housing prices remain fairly resilient. So I think, again, this ability to support growth is important, so having the flexibility with credit growth is something that we welcome. And then I think in the past, again, we have shown that in any given quarter and throughout the year, really, as we think about it, on an ongoing basis is the ability to support that growth. So yes, I think that's -- that would be the quick answer to the question on credit.

Okay. And Vishal, Justin Tan from Tree Line asks for the loan growth target for the second half and factors to drive it? And where do you see the credit demand coming from in terms of industry?

Thank you for the question. So just to follow up on what Bang said. Our strategy is really to -- it's customer-focused and really need-driven. So let me give a perspective across retail, SME as well as wholesale banking, and then I'll also dig deeper into the sector-related question. So in retail, our exposure is largely primary mortgages. 80% of our portfolio is mortgage, and we do expect that if the COVID-19 situation is well contained, the demand for new homes from homebuyers who mostly are existing, as well as new clients in affluent and mass affluent, to pick up. So with the increased credit room we have, clearly -- and if the COVID situation is well contained. We do -- we will expect, and we do expect to register strong growth in our retail mortgage business. From the SME perspective, over 80% of our loans to SME are short-term working capital. And again, one could see from the chart on NFI, particularly when we look at fees or trade fees like LCs, as well as guarantees, that in Q2, we have registered strong growth. So a lot of the off-balance sheet exposure in the form of letters of credit would become on balance sheet in the form of trade loans. And clearly in May, following in June and again in July, we have seen the domestic economic activity pick up as well as on the exports, the largest trading partners, which include U.S., China as well as with the recent European and Vietnam FTA Agreement, we do expect the exports to pick up as well. So clearly, in the second half, as the domestic economy picks up as well as some of the other large exporting markets of Vietnam, and especially as European -- sorry, as Vietnamese enterprises seek the benefit of 0 tax, 0 import duty from the European Union, we would expect the SMEs as well as wholesale banking clients loans to pick up. Lastly, the comment on wholesale bank. We have seen some of our large corporate clients, despite COVID, continue to drive the investment. And as I had mentioned earlier in my presentation, we've supported them, obviously, on their long-term needs largely through bond origination. And they have successfully used us as the issuer and arranger to support them on the medium, long-term expansion needs. From a sector perspective, maybe let me just give a deeper insight on first half and also the expectation in the second half. What we have seen is clearly certain sectors, like e-commerce, utilities and telecom, have clearly outperformed and increasing digitization has benefited them. At the same time, we have seen the larger developers as well as the contractors continue with their projects. And also if the COVID-19 situation is well managed, we do expect them to have new project launches in the second half, which will be a function of, obviously, the uptick in the home buying. Bang alluded to this, we do expect the secular trend of Vietnam continuing its path of urbanization to continue. And therefore, the demand for housing and quality housing would continue. Lastly, another sector which continued strong growth in first half, which we expect in the second half, is FMCG. And within that essential food and beverage. So obviously, the consumption of daily food, including milk, milk products, et cetera, and daily essentials on FMCG continues. And there, we continue to see strong growth and increasingly people adopting obviously, digital platforms to buy. So all in all, in the second half, we do expect the essential sectors, such as food and beverage within FMCG category, to continue, real estate and construction materials demand. The secular trend clearly is that urbanization will continue and the demand for quality housing will continue, and we do expect growth to continue there. Domestic tourism had really opened up, and we were seeing sharp recovery. Obviously, with the recent outbreak in Da Nang, people are watchful. And should we, as a country, be able to contain the situation in the Central region then we would expect the domestic tourism to continue as well. And last but not the least, clearly utilities and telecom has clearly been the winner. E-commerce, utilities and telecom has been the clear winner in first half, and we expect this trend to continue in the second half. So with that -- with having a strong capital position, surplus funds, which is liquidity, as well as the additional credit room, we -- as Chung mentioned, we are one of the banks who has the highest sort of lending cap -- lending growth cap. We are well primed to support our clients as they recover the business as well as they expand, both for corporates as well as for retail clients.

Great. And a question for Bang then. Vishal touched on a few of these items on the real estate market seeing some of the recovery, but there's several questions from investors regarding the real estate being one of the key sectors or ReCoM being one of the key sectors for the bank, and that means that there's relatively large exposure in this sector. So how are you handling the risk concentration? And what are your -- do you have concerns in the second half for any stress there?

Thanks for the question. I think this goes back, again, to our overall strategy, and it starts again with low risk, high return. We identified a few years back, the 6 economic sectors that we believed would, again, contribute to, follow long-term secular trends and really the consumer, and we've been prosecuting and growing those segments as they develop. Clearly, the real estate sector has been a big contributor in the growth, and just in the economy over the last few years. I think the key point there -- and has been proven through since the early part of COVID is not only knowing where to play, but who to play with is very important. So customer selection has been certainly an important point as well as sector exposure. I won't go into it again, but Vishal has shown that we have been able to manage our overall risk. And I think, again, we look at the entire portfolio across different views, if you will, both in terms of sector and in terms of segments and then obviously in terms of customers. So I think overall, I would say we've still managed to manage the overall risk of the portfolio in business. As it relates to real estate itself, clearly the secular trends remain intact in terms of the demand for housing. So we'll continue to pursue that. But the objective ultimately is to continue to expand the other economic segments as they develop, find opportunities to really transition and transfer some of the learnings we've had and really managing the ReCoM ecosystem and transfer that expertise and knowledge to the benefit of our customers in other segments. And so I think over the medium and long term, clearly, as the secular growth story continues and the growth in middle class continues, and the needs shift from housing to auto to other areas, we'll follow that across these other -- the development of the other economic segments. In the near term, I think what we can see from the first half is, again, when you look at our credit quality, it remains intact. When you look at the underlying demand for housing from our end customers, remains intact. If you look at some of our large corporate customers, in fact they have been able to manage extremely well in this environment. Some have -- can manage their needs, and been able to -- whether sell assets, raise capital elsewhere, excess liquidity. I think they have shown their own resilience in being able to manage through what again, has been a headwind for the entire economy through the first half.

Sure. And a couple of questions from Kai, online. How does the bank evaluate the risk of the real estate market? You had mentioned before that price -- home prices have actually been up a little bit. Are there other signs that concern you in terms of the health of the market? And related to that, he also asked a question around single concentration -- single customer concentration risk in the event that one large customer in that sector were to default.

Sure. On housing, I think Joe mentioned this in the presentation earlier. We've seen that housing prices have still managed to remain fairly stable and up. Supply, again, is down a little bit year-over-year, but that, again, allows us to maintain -- what we've seen again that the pricing has remained fairly stable. So again, I think a lot of that goes back to the underlying secular demand. There was a statistic I believe I mentioned before, which is there's roughly 700,000 new couples being married every year, so their needs for housing will only continue to increase, and a number of studies have come out saying that, again, that demand will outstrip supply for the next few years. So that's a lot of, again, the work that we need to look at and do look at as we think about the customers and areas that we're focusing on. Then in terms of concentration, one is just from an overall regulatory standpoint. We have obviously single lending and group lending limits that we comply with. And so within that we're, obviously, in compliance. More importantly, just as I mentioned earlier, when we think about the overall exposure, we also manage risk across many dimensions. So just on overall credit exposure, no single credit group is above 5%. It's all under 5%. Likewise, on the revenue side, no single customer accounts for more than 5% of our overall revenue. So I think we're again well balanced in terms of our risk management, in terms of exposure from a capital and an overall credit standpoint.

Great. So Bang, another question for you is in terms of provisions, the provision expenses have increased significantly on a year-over-year basis. Could you explain a little bit the reasons for that?

Sure. So when you look at provision expenses, most of that has actually come in specific provisions, general provisions as a function of growth in the loan portfolio. That's really specific provisions is where we've seen an uptick, year-over-year. And if you look at the first half at -- again, I think first half, it's up roughly -- 1 second, let me flip to the right page. Yes. Overall, specific provision is up 600-plus percent year-over-year. What we've said there again is managing our -- accelerating the write-offs of NPLs given the challenging environment. And it's just, again, NPL management. I wouldn't say we've been concerned, as Vishal mentioned, about just the overall risk profile, and that's, again, within our existing risk appetite. So this is all kind of within the expectations despite the impact of COVID-19. And so yes, that -- again, it's more about just pruning the NPLs where it makes sense to do so, and that's why we've seen a little bit more of an uptick on specific provisions from this year compared to last.

Sorry. Bang, again. Maybe we have time for this. This will be the last question. This is from Andrew at Halo Global. OpEx looks like it's increased 20% year-on-year, but it was down quarter-on-quarter. Is it fair to assume that your cost income ratio will fall as digitization increases? And what would be the medium target -- medium-term target level?

Yes. So maybe I'll start with the part about where it will fall. I think the expectation, is, Tu had mentioned, the investments -- significant investments we're making in technology to create more efficiency and productivity is intended to allow, one, us to scale the business and lower the cost to serve. So clearly, a trend that we're seeing is how do we digitize and provide better services through digital channels, which again, will reduce the need to have more branches and more people in branches. So I think the long-term trend certainly is one where we can maintain, if not improve on our cost-to-income ratio. In the near term, however, we do see -- and as we plan our next 5 years, really seeing much more investment to make that long term -- medium and long-term outcome possible. So we can expect to see a bit more investment over the next couple of years, which may create an uplift in the cost income ratio. But it's really with the long-term view of gaining the benefits from those investments in the form of operating and productivity gains. Now -- and as we look just between now and the year-end, as I mentioned, as business activity resumes, there will be more investments and more spend -- discretionary spend in certain terms of travel to meet customers, marketing spend to, again run certain campaigns to engage with customers. Those types of spending will increase as we move into the back half, provided that the containment measures are successful. To the extent that they are not for some reason, then again, we'll continue to manage those expenses on a discretionary basis. And then head count growth, as we've mentioned before, we are nearly flat to the beginning of the year, but we'll continue to selectively hire, upgrade our staffs, build capabilities. Again, all of this is with the focus and interest in lowering the cost to serve ultimately. When we manage our 3 cost levers, it's funding costs, credit costs and ultimately OpEx. So I think everything we're doing on the investment front is to allow us to maintain a best-in-class cost to income ratio. A lot of that will ultimately benefit our customers.

Great. Thank you, Bang, and thank you, everyone, for joining us today for the second quarter 2020 analyst presentation. Please do take the survey and let us know how we can improve, if you have not taken that survey. The IR team will put that slide back up for the QR code for you to take the survey. Thanks again.