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

Today's main presentation will be followed by a short break, after which we will return with a Q&A session. If you have any questions, please scan the QR code at the bottom of your screen or e-mail IR, and we will try to answer your questions as time permits. Please note that today's presentation is being recorded, and a replay will be made available on Techcombank's Investor Relations website tomorrow. With us today are Jens Lottner, CEO; and Bang Trinh, CFO of Techcombank. I will now turn it over to Jens, who will make some opening remarks, and then Bang will go through the financial results. Jens?

Thank you, and so good afternoon, everyone, to the fourth quarter and results presentation. These have been unprecedented times. And we are quite happy to say actually, this also has seen an unprecedented performance. So what I will do is I will just quickly go through the highlights of the results. And then Bang will go in much more detail in some of the numbers. And then we will actually give you a little bit of insights into the strategy for the next 5 years, which we have just completed. So on the highlights, as I said, unprecedented times and unprecedented performance, why we were still able to help our customers. So in terms of TOI, we've seen overall an increase year-on-year of around 28%. So we are now at VND 27 trillion. Most of that was driven out of our core businesses. And we've seen a very healthy TOI growth from and the NII side as well as the non-NII side. And profit, thanks to the strong performance on the revenue side but as well as very strong and cost control, we have seen an increase of around 23% year-on-year. So our profit right now stands at roughly VND 16 trillion. Again, we have taken and, what we will show you a little bit later, quite some conservative stance on the provisioning. And so you will see that this PBT has been achieved despite increased provisioning and just being cautious in terms of what might lie ahead. Because of optimization of our credit book as well as also a better funding mix, our ROA has increased by 20 bps to now 3.1%. And where we have been really making progress is actually on our funding side. You've seen that our CASA ratio now stands at 46.1%. So that's more than 10% point up from where we were at the end of the financial year 2019. This reflects our very strong deposit franchise, and it reflects our strategy in terms of [ CAR ] and base fees as well as cash backs, but it also speaks to our very strong digital franchise because a lot of this has been acquired through new customers and existing customers and who have engaged with us digitally. NPLs are down, and we are now at 0.5%. And that is due to the fact that we really have used, again, a very conservative stance and cleaning up the portfolio and making sure that whatever we were unsure of and has actually been written down. And at the same point in time, we also put additional provisions in just in case that we're prepared for whatever might be coming. So our loan loss coverage ratio at this point in time stands at around 171% and which is a major increase from what we had beforehand. Last but not least, our CAR position remains very, very strong. And it has helped us quite well during these times because we were able to stand by our customers. At 16.1%, it's the highest in the industry, and it will also keep us in good standing with the regulator as they think about granting credit quotas for the year to come. So overall, as I said, very unprecedented volatile times, but we are very happy to report that the results coming out of our year are actually pretty strong, which just speaks to the strength of our franchise. But again, as I also said, we have done a lot in order to help our customers in that difficult time. And you will get some more information from Bang as he'll walk you through the details. Bang?

Thank you very much, Jens. Good afternoon. And again, I think just to reiterate what Jens has said, in the challenging year that required us to manage through significant uncertainty, we were able to deliver strong financial results. Our TOI was up 28% year-over-year and saw double-digit growth in terms of NII as well as non-NII, up 31.5% and 21.7%, respectively. Importantly, growth came in nearly all areas of the business and at different points throughout the year, reflecting the resiliency of our business model and the ability to adjust and respond to customer needs. NII actually benefited from low-cost funding, and we saw this again and a flight to quality throughout the year as Board more -- as to see the strength of our CASA growing year-over-year and reaching again, as Jens mentioned, 46.1%. And despite the additional provisions, which Jens has also mentioned, our PBT was up 23.1% year-over-year. Our profitability metrics also improved year-over-year with ROA up 22 basis points and ROE up 42 basis points to reach levels of 3.1% on ROA as well as 18.3% on ROE. Now I think the liquidity and capital ratios as well were consistently high and demonstrate the strength of our balance sheet with a 16.1% Basel II CAR ratio and 15.7% Tier 1 ratio at the year-end. Now as one looks at these financial results overall, I think it is important to note that it was achieved against the backdrop of COVID-19 where we're working very closely with customers impacted by COVID-19, coordinating very closely with government and regulators to ensure we had a coordinated banking system response and all the while managing balance sheet strength to further support customers and weather the crisis. This included raising the $500 million of the syndicated loan earlier in the year to provide ample liquidity and, again, puts us in a very strong position at the end of 2020 as we head into 2021. Looking across the entire balance sheet, growth was strong in a number of segments. Corporate saw the bulk of growth early in the year. We'll talk a little bit about that in a bit. But as one looks, again, at our CASA ratio that increased 46%, really driving down our cost of funding and helping really support our NII growth during the year. I think the -- on the right-side chart, total operating income and profit after taxes, you can see, despite the challenges we faced, earnings' momentum continued to be very strong. And the provision expenses, again, did not impact materially the profit after taxes we would ultimately deliver by year-end. On segments again, the theme this year was, again, responding to the customer needs. We saw a significant amount of that in the first half of the year on the large corporate side, highly secured lending, high-quality corporates. And so we saw -- again, if you look at the growth year-over-year on corporate side, that was up 45%. As we headed into the back half of the year, certainly in the fourth quarter, a significant pickup in economic activity, which saw a resumption in growth on the SME side with resumption activity as well as on the retail side, as you see a strong fourth quarter for the SME segment of 24% and 9% for retail. Again, overall, the quality of the loan book is very strong, highly secured. And ultimately, we were able to respond to customer needs and grow our balance sheet in a very healthy way. Looking at the overall financial results, again, both on a quarter basis as well as the full year, strong growth across all core segments of the business for the full year. If you look at the quarter, very strong NII growth in the fourth quarter. Net nonoperating interest income was down 18%. That reflected more of kind of a phasing on our Banca business, where we saw a lot more activity in the third quarter. But if you look at the full year, you can see it was up 23% year-over-year. Despite the economic challenges of COVID, we were still able to enjoy healthy recoveries in the year, up 17% year-over-year, again, ultimately delivering 29% increase on top-line TOI. On OpEx, we were very deliberate in managing our costs throughout the year. Through a period of uncertainty certainly in the first half, we did pick up some spending in the second half but ultimately ended the year with a very low-cost income ratio of 31%. Again, OpEx was up 18%. And then provision expenses, I think that's clearly where, as Jens mentioned, we took prudent actions to proactively write off problem loans and really position the balance sheet to absorb whatever might come or just position ourselves again to grow into 2021. So net-net, when you look at both the quarter as well as the full year, a very strong growth on a profit-before-tax basis. Now looking at the mix of income. Again, we're seeing double-digit growth and contributions both on the net interest income side and the noninterest income side, stronger growth this year. Again, most of the growth was driven by lending and NII from cost of fund -- lower cost of funds. And so that was the big theme. NFI was impacted a lot in the earlier part of this year with the decline in business activities, but we did see a strong resumption kind of in the back half. So still, again, healthy growth, double-digit growth on both net interest income and noninterest income. And then by segment, we saw very healthy growth across, again, all segments on the net interest income side. The majority of that did come in the form of -- on the WB side that did see very strong growth, again, in the fourth quarter for retail as well as SME. On the net fee income side, the -- our wholesale banking business did see significant pickup or contributions from our bond business. Retail was impacted by our Banca performance, which I'll talk a little bit about later. But overall, when you look at fee income, again, strong year-over-year. Again, the impact on the fourth quarter was just more shifting of activity between third and fourth quarter when looking at a historical comparison. On net interest income. And so when we really look at this, as you can see, the deposit rates and the overall cost of funds ultimately declined faster than lending yields, and that resulted in a net interest margin expansion as we move through the year and ended the year at a healthy net interest margin of 4.9%. And then when you look at our credit balance again, large corporates were the same in the early part of the year and then, again, picking up quite a bit in the back half and the last quarter on SME and then on retail. Deposit balance, when you look at it, this is probably the bigger theme, very strong deposit franchise, significant growth, 61% on CASA growth. Term deposits were declined. This was a lot more about managing our overall funding mix and funding costs. But ultimately, when you look at the overall top-line growth on deposits, very strong as we look at the year-over-year comparisons. Ultimately, this drove our net interest income growth, and you can see 32% year-over-year. As we look at the deliberate or the -- really the results of a deliberate focus on strengthening our deposit in particular, cost of franchise, you can see now how we stack up against our peers in the sector. 46%, again, was even above our 5-year plan from 2015 to 2020 that we finish in excess of that target. But really what this has done has given us a significant cost advantage as we continue to look at opportunities to support our customers as well as grow going forward. And when you look at CASA by segment, again, you can see a significant growth on retail. There was also strong growth on the corporate side. Importantly, looking at cost of proactive retail customer, that was up 40% year-over-year. Again, more customers are coming on board with us. They're increasing their balances, transacting more. So we are seeing the strength of our franchise and brand and attracting and retaining retail customers. And likewise, there has been a continued shift in growing through our online digital channels. You can see that we picked up from 34% at the end of last year, finishing the year at 48% of our deposits going through our digital and online channels. This points again to what continued to drive CASA going forward is the ability to scale on the digital platform and drive much more transactions through. So as we think about, again, where the upper limit of CASA is, I think we still believe there's more upside from where we are standing now, and we've certainly seen that despite the big challenges that we faced in 2020. When you look at our NFI mix, again, growth across the board other than a decline in Banca. When you look at Banca, it was down. I'll just start with that. We've talked about this for the last couple of quarters. We are doing work here under the new leadership and a new sales model. We have seen a pickup month-over-month in the fourth quarter and feel good about where we're headed into 2021 with some of the changes we've made towards the back half of the year. But outside of that, a very strong growth across the board. The credit cards was down a bit. That actually reflected fee expenses from our 1% cash back. So actually more transaction volume. So in many ways, it shows, again, customers are transacting more with us. And we're happy to pay that fee and having that translate into more cost and lower cost funding. And the big -- again, the big highlight for this year, again, is the strength of our bond business. It, again, shows the overall strength and mix and diversity of our net fee income. We did have strong growth throughout the year. There was a pickup in volume, what you saw in some new customers, but overall, again, a strong growth across the board. So up 28% year-over-year. I've already commented on the 12% or decline on quarter-on-quarter. So I won't touch upon that again. Again, just on our bond business, in the year, that was challenging. Customers continue to -- our top customers came and we've got to pick the highest quality customers to support in this environment, a lot less about, again, volume and more about focusing on quality, but you did see a 18% year-over-year growth in terms of bond issuance volume, and distribution volume continues to be strong as we see demand through our affluent and wealth management channels for yield products. So, again, transactions continue to drive CASA, and cards is a product and a solution that our customers continue to look to provide convenience for their shopping. So we maintained #1 rank in both debit cards and Visa, again, for another year, very high market share that we've retained. And this, again, will be a driver of fee income going forward, but we did see a strong growth year-over-year. On cost, I think I'll spend a moment here. We talked about -- throughout the year about the importance of maintaining cost discipline and certainly in an uncertain environment. And you can see from where we ended the year at 31.9% cost-income ratio, we were able to maintain it with what I'd say almost historically low levels in many ways probably not sustainable. But I think it's more a reflection of both a combination of stronger top-line growth but also just being very prudent, given the uncertain environment. Moving forward, we would certainly expect that to grow as we invest more and digitalization, and Jens will talk a little bit about that more when he goes into the strategy part of the presentation. But overall, we were happy -- certainly pleased with how we were able to manage costs, overall JAWs was positive this year, staff costs as well increased, but very containable. And then overall, year-over-year growth was 18% for the year. Asset quality metrics, again, something that we've been focusing on in terms of making sure we have a fortress balance sheet. We took proactive steps throughout the year to deliberately write off loans that we thought were nonperforming and knowing that if to the extent that the economy recovers certainly we could see that on the back end through additional recoveries. But the objective was to make sure we maintain very healthy asset quality metrics to be able to weather whatever came. I think if the market continues to recover as we've seen, these metrics will remain fairly stable. And if things turn -- take a turn for the worse, I think we're prepared to absorb it between our coverage ratio and certainly where our NPL ratios ended the year -- at end of the year. So restructured loans. And I'd say, throughout the year, we've also talked about kind of the state and quality of our book. We've seen continued improvements here on the restructured side. We've seen an ongoing decline in the rescheduled loan ratio. We ended the year -- or ended fourth quarter at 2.8%. I expect that to continue to decline in the year to come. Importantly, when you also look at the overall quality and nonperforming loan ratios across different segments of the loan book as well as on the overall, very, very strong asset quality and finished the year at 0.5%. Again, that was a function of writing off quite a bit of loans to make sure we strengthen our balance sheet but also just seeing, as the year wore on, the strength and resiliency of our customers. I think this page really again, just helps provide some context around why we feel very excited about our end-of-the-year position as we head into 2021, an extremely strong capital position, the highest capital ratios in the market, a very strong funding franchise, which again saw us reach 46% in CASA with 61% year-over-year growth and on absolute CASA balance. And when you look at our liquidity ratios, we are well positioned to, again, support our customers and grow the balance sheet and diversify the business going forward. We showed this page in our last analyst presentation. And I think what it continues to show is the deliberate execution of our strategy has continued to show differentiation in our key operating metrics. When we think about our funding costs and when we think about our cost-income ratio and our OpEx and really thinking about how to ensure we maintain very strong asset quality metrics, these are all measures that we look at the very -- and focus on deliberately. And knowing that these are key levers for us to, again, whether it's discussions with the SV or on credit limits, or ability to kind of grow our business and diversify, as we'll talk about shortly, it puts us in a very strong position as we move ahead. And then relative to the sector, again, I think we're certainly proud of being able to deliver these results for the year-end. Now I'm going to touch upon the outlook for a bit. On this, I'll talk a little bit about the macro situation that feeds into how we think about the outlook for 2021. Key indicators, as you look across the board, show against a very healthy recovery in 2021. Up until now, Vietnam has been extremely successful in containing COVID-19. We've seen a couple of surges who we actually saw today a pickup in the port city of Hai Phong. As the government has shown its ability to manage the crisis to date, whether it is at a national level, at a provincial level, at the city level, we've responded very well in terms of being able to -- the city -- the government has in terms of being able to leverage data, contact tracing to basically manage to contain. So I think with the belief that this will also be contained, as we look ahead, I'd say all macro indicators would suggest a very strong recovery in 2021 on the back of originally strong 2020 when you look at global comparisons. So GDP growth of roughly 6.5%, inflation will continue to be under control. See, retail sales growth, which is a proxy for the economy is expected to recover after a negative year in 2020 to 6.6%. We are seeing FDI disbursements continue, although they were down last year. When you look at regional context, very strong FDI continuing to flow into Vietnam. The other point I would just say is even on the real estate side, we have seen -- there was certainly a slowdown earlier part of the year that are seeing activity pick up and recovery as we head into the end of the year. And that certainly will be important for our business as we look ahead at mortgage growth and housing demand. And the last, unemployment remains fairly steady. I think for the banking sector, the theme for next year will be the liquidity that's in the system and lower interest rates. We do see sector growth on the loan side at 14%. That's the target that is out there right now and expecting that to outpace deposit growth. As you can see across the -- all these charts here, on the lending side, we certainly expect to be operating in a lower interest rate environment. That is something that certainly will be a little bit newer for the banking sector, but we are certainly well positioned given our cost of funding advantage and look to see this as a boost to the economy and supporting lower lending rates for customers. So given the uncertainty that's still prevailing in the market, we are not providing specific guidance for 2021. We are giving some directional guidance. Let me walk through that kind of point by point. But bottom line, assuming that things continue to recover, and we certainly are cautiously optimistic, we would expect to see both asset and earnings' momentum continue into 2021. But on credit growth, we are -- as we've shared before, awaiting the SPV guidance on what our targets are. This year, I think, in a very prudent way, they have issued quarterly caps on lending growth. But in past years, and certainly given the strength of our balance sheet, we would expect to be growing kind of in line with some of the numbers that we've seen in recent years. So would expect those levels hopefully to be achieved. It may come a little bit later in terms of the official numbers, but we certainly expect to be near the top end of credit growth that's issued to banks. In terms of where that will grow, again, 2020 was a large focus on large corporates. That's where a lot of demand was. That's where the quality and secured lending books were. In 2021, we see a shift back to growth in SME and retail, and those will be expected drivers for credit growth in 2021. Cost of funds, again, a lot of this we do see directionally heading down given the overall interest rate environment as well as the contribution and the expected growing contribution from CASA. On net interest margin, relatively stable. We do have a cost of funding advantage as we are out in the market lending, but there are certainly competitive pressures out there given the ample liquidity. So we do see it fairly stable. The important thing is healthy and driven a lot, again, by our cost of funding advantage. NII growth is expected to be in line with credit growth. It will benefit from our cost of funding, but more moderated in 2021 relative to 2020. On the NFI side, we do see a pickup on contributions from Banca. We see overall year-over-year growth picking up again on NFI. And some of the drivers of Banca again, is new leadership, new sales model and exclusive products for our customers. We also see the resumption in business activity driving some of our transaction banking activities, such as LCs and LGs and then continued growth in wealth management in terms of bonds distribution. Overall, credit quality and asset quality metrics, we do see -- well, sorry, before I go there, cost-income ratio, as I mentioned earlier, I would expect this to go up as we continue to increase our investments. As the economy recovers, a lot of this will go into digitilization, selective hiring. Jens can talk a little bit more about some of the specific initiatives and then, lastly, on NPL and credit quality and credit costs. NPL ratios again finished almost at the historical lows. We do believe they were historical lows for the bank. We do see more normalized NPL formation and write-offs going forward. So as we think about what happens as Circular 01 expires, we do see a little bit of a pickup on NPL's ratio, but again, well contained relative to the last 2 years. Lastly, on credit costs, as the trends, again, as the economy recovers, we actually expect credit cost to decline relative to the significant write-offs we took this year, which bumped our credit cost just above 1%. With that, I will end my portion of the financial performance review and hand it over to Jens to walk us through the 2021 to 2025 strategy.

Thanks, Bang. So 2020 marked the end of the execution of a relatively successful strategy, which were formulated in 2016. And it was very focused and it had some clear pillars to it. The whole theme was actually around making sure that we drive a very kind of low-risk high-return strategy, which were focused on the retail side, on the affluent and mass affluent and going and after products like bonds, bancassurance fee-based products, which would actually allow us to get better return on equity and return on assets, it was a value-chain based on the corporate side to make sure that we really understand the chain and therefore, minimize the risk with a focus on 6 key industries and especially focusing down on the real estate sector. It was very much focused on transaction banking in order to make sure that we really have a stable funding base and was focused on progressively and digitizing the bank. So we actually made pretty good progress. As you can see, in some of the areas like on funds, on AUM, bonds, on credit cards, we are #1 in the market. And we've talked about the CASA ratio, which actually has come to be the leading CASA ratio amongst all the banks. And again, we actually have seen a massive increase in the number of digital customers. It was also recognized as pretty successful, and we got awards. But probably even more importantly, if you look into some of our credit ratings, and we are the highest rated bank in Vietnam. And some of that is, if you just look into the pure financials, over the last 5 years, you see that there is a constant improvement on all the key metrics that Bang was talking about. And so the CASA ratio, and again, if you see this in a more longer trend, went basically from 20% up to 46%. Assets grew at around 18% on a relatively continuous basis above market while, at the same point in time, NPLs were under control, which is also expressed by the fact that actually the coverage ratio is actually increasing. And on the performance side, profit has kind of gone up from VND 2 trillion in 2015 to now roughly VND 16 trillion. And again, that is driven by revenue growth because we have more customers but even also driven very much by still maintaining very much cost discipline as we started expanding our book. So this was a very clear and focused strategy. And we've seen it as very successful because we delivered what we have promised to the market. So as we started sitting down and thinking about what is next, the core of that is probably do more of the same. But again, make sure that you can build and expand on all the strength you have acquired over the last couple of years. So our aspiration for the years to come is increasing the CASA ratio, maintaining the NFI, TOI ratio at around 30%, which means, again, very strong fee-based business. We are aspiring for a target return on equity of 20% at CAR ratios, which are still standing at 15% to 16% so which means that our intrinsic profitability compared to some of our peers in terms of absolute numbers needs to be significantly higher. And we are aiming at roughly a VND 20 billion market cap in 5 years from now. And again, this is all based on the things and the performance trajectory we've seen in the past. And as I said, if you look at down over 5 years, and you actually see that a lot of the underpinning growth trajectories is something which we managed to achieve over the last 5 years. So we're actually very confident that we can deliver. So in terms of the key elements and some things stay, and some things are expanded and something's getting a little bit more focus. So where we stay is on the areas we are very, very strong that is wealth, CASA, mortgage, and we try to expand in these areas. We will clearly try to even penetrate these segments further. While we are already pretty strong in that, we believe there is much, much more room to grow. And we want to make sure that in terms of areas like affluent, real estate sector payments, we just use that in order to expand into other segments. So what will be new and we talked about it a lot. Why we are very comfortable with the positions we are in also in terms of the loan book? We still believe that diversification will actually help us. So we want to make sure that we secure our access into growth areas in the future. And that means, especially when it comes to payments, when it comes to SME lending, when it comes to further expansion of the middle class, mass affluent and upper mass, we want to make sure that we can expand into these areas with the right business models, which means we need to find something which allows us to expand in serving these segments at scale with highly efficient business models. In order to do that, we are focusing on 3 key pillars. They were there before, but probably they are now a little bit more accentuating in certain areas. We will still go and focus on talent as the core of what we are doing, and we'll talk about this a little bit later. But talent and superior people and quality is at whatever we are doing. And then we will use that in order to build 2 additional capabilities. One is digital. So we're already pretty good in terms of our apps, but digital is significantly more. So it is really digitization of the entire bank. It's digitizing our front-end processes. It's helping our relationship managers to really have all the knowledge and the support at a fingertip on an iPad, but it also means that all our core infrastructure runs on very, very efficient platforms. So cloud will be a very big element of that strategy. And the other one, which is probably a little bit more pronounced than what we have done in the past, is data. We believe that data holds the core to winning. So we are investing a lot, building up our data infrastructure and making sure that we are benefiting from all the advancements of technology, which has come to bear over the last 5 years to a certain extent, to the mainstream. So all the buzzwords like artificial intelligence, big data, machine learning, all things which used to be very reserved to banks in other parts of the world, we think we can bring this to bear. And when we combine digital and data and talent, we believe we can actually create very unique value propositions, and we believe we can create these value propositions at scale, meaning we are able to deliver business models not just for the affluent or the large caps, but we are able to create these kind of experiences also for lower end of the pyramid and for customers which are not as big or which have not so much money. So we're really trying to expand into the mass affluent or the mass segment as well into the SME area. Now the way how we're doing this is we're trying to do this by leveraging expertise from colleagues, which have recently joined the bank from all across the world. And what we're trying to combine is local knowledge and with really international expertise in very specific technical areas. So -- and while a lot of the businesses are run and by people with very deep insights in the Vietnamese market, when it comes to risk, when it comes to digital, when it comes to data, we are leveraging expertise of people who have been around these areas for a much, much longer period of time, and you can help us accelerate the journey. And you see just some of the examples, but when you look a little bit through the CVs, you will see that these are all people who have worked with leading banks and leading technology companies and leading insurance companies either in this part of the world or in other parts, and they are all coming in over the last couple of months and are now on board and to help putting these things, which I've just talked about, in place. So they will also help beef up the capabilities of our local team. So in the end, we believe that we actually really get the right mix and the right synergies between local understanding, international expertise to help us accelerate and distance the competition. The way how we're doing it is we cannot do everything in one go. So we will concentrate and focus over the next couple of years on certain steps. So the first one is we really try to enable the bank much more than what we have done in the past. So when we put in and some of the foundational capabilities on data technology processes, we will make sure that whatever we're doing can actually achieve business at scale. We've seen in the past when we were really expanding that some of our infrastructure might not be able to completely cater to these enlarged audiences and customer bases. So we will make sure that this is not the case. There'll be a lot of functionalities which we will put up to the cloud because that is, from our perspective, the one kind of critical infrastructure element, which will allow us to scale well beyond what we're currently doing. We will then engage on the basis of that new platform with our customers in a different way. And so we will create on our capabilities to intact with customers not just in branches, but also on the digital media as more and more of our customers going and becoming part of the digital world. And then lastly, we will really be able to expand, and expand for us means really doubling and customer -- an active customer really scaling 2 or 3x more than what we currently have. And again, the plan is agreed upon and the investments we are envisioning to make this reality around USD 500 million over the next couple of years. All of that has been approved. We believe that from a financing capacity, we can do all of that by kind of self-financing, still maintaining our performance. And our CI ratio might go up a little bit, but still will be completely in line with the market. We will still aspire to be actually at the leading edge of the CI ratio. But again, you might see some kind of increases over the next 2 or 3 years. And then it will be coming down again as we will start reaping the benefits of these investments. Again, likely in the Q&A session, a little bit more time to go into some of these details, but that is just a summary, as we said, a highly successful year on a highly successful strategy, 2015, 2016 to 2020. And we are continuing on that path. We will maintain the growth trajectory which we have shown and demonstrated over in the last 5 years. We are pretty sure that leveraging the capabilities we have, plus enriching it and will get us into the place, and I described where we will be the leading bank in the country, and again, will create significant value for our investors. So with that, I rest it here and probably will start after a certain break with the Q&A session.

Thank you, Jens. Thank you, Bang. We'll take a 15-minute break and come back for the Q&A session. [Break]

Welcome back, everyone, for our Q&A session. The first question is from Thanh at Maybank, and I'll give this one to Bang, our CFO. Could you share with us your -- an update on the restructured loan amounts? And what do you see going forward?

Sure. Thank you. As I mentioned in the presentation, the restructured loan amount, we are quite surprised, pleasantly surprised, if you will, as we progressed through the year. Last year, we started out at close to 7% in terms of maximum exposure and finished the year at 2.8%. So the view going forward is that it will continue to be declining. We expect many of the customers to come off the restructured and perform. And so again, we'd expect to see that number decline as we move through 2021 and expect that to be significantly lower than the 2.8% where we finished the year.

Okay. Great. Bang, as a follow-up to that, what is Techcombank's view on the revised Circular 01 draft that we hear has been circulating? And what will be the impact on your financials?

Good question. Overall, as we think about the revised Circular 01, I think we are certainly supportive, certainly understand the intent. It allows banks to ultimately reflect the -- more correctly, the quality of our loans and especially those impacted by the COVID pandemic and, at the same time, allow banks to ultimately take time to provision that over time. So as we understand it now, and we're certainly working closely with the SPV on these draft regulations to make sure they're clear. But as we understand it, the loans would be still classified under 0209. We'd make the additional provision expenses. There's a schedule. I think it's a minimum of 30, 30 and then 40 that we could spread that over a period of 3 years and amortize it. And the principle would be essentially one category, one customer. But when you really think about it, and we are certainly looking at our restructured book on a regular basis and very rigorous, as we think about what needs to be done there to continue to manage it. If we apply -- even if we didn't amortize and we look at the total quantum of what we expect by year-end and that provision expenses at this point, it would be roughly just over 100 billion. And so again, not a significant impact on the provisioning side. And then we were actually -- to really go back to 0209 and look what the impact would be overall looking at the restructured book, it would still have less than kind of 1% NPLs for the overall book. So I think it's something that, again, well managed. We feel we're in a good position. This is again the reason why we took very deliberate actions in 2020. And given the uncertain environment that's still ahead, while we're cautiously optimistic, we still feel that it's better to be prudent. And so again, I think we're in a good spot based on what we can see at this moment.

Okay. Thanks, Bang. Just to make sure that we heard that right, that means that you still expect the trend for restructured loans the balance to continue to decrease? And that isn't really changed by the revised Circular 01 and the maximum amount of increased provisions from those restructured loan is only slightly more than 100 billion for this year. Is that...

That is correct.

Thanks. And this next question will be for Jens. Could you update us on -- this is from Thanh Quan at Maybank as well. Could you update us on the bancassurance business? How far has been restructured, what has been done and what is the plan with the partner going forward?

So, thanks for the question. As we said, Banca is one of our key businesses going forward. In terms of the model, and we have reset the model. We said it should be a direct sales model. So what direct sales model is means that our employees will actually advise our customers. And what we needed to do is that we make sure that they have the right expertise and the right support to do that in the best possible way. And that is what we have worked on over the last couple of months with our partner, Manulife. So we increased coaching, we increased specialist support. We gave them additional tools, which now gives us more comfort to a certain extent that whenever we are advising on these products that we're doing the right thing. But I think it also gives comfort to our employees that they can recommend these products and know how to make sure that the right products go to the right customer. And that has actually seen much more activation, much more activity in the branches. And so therefore, even if the first 9 months have not yet seen all the results we had hoped. And under the new leadership and a way of broaden, we see actually that especially over the last couple of months, but also in the beginning of January, we clearly see an uptick compared to the performance we had 1 year or even 2 years ago. So we actually are pretty positive, and we're working very closely with Manulife to make sure that all the support -- that all the support actually goes to the branches. At the same point in time, we are working on the product side, making sure that we have the right products for the right segments. And we work on some exclusive products, which will only be provided through our bank channel. So -- and again, we are actually pretty confident that we have kind of gotten now to a better place, and that we would see increased productivity and performance improvement of that business over the next time.

Jens, as a follow-up to that, do you expect to be in the top 3 in bank market share anytime soon?

We used to be there, and we want to be getting back there. So yes, we expect somewhere to be in kind of double-digit market share on the new premium, and that would actually get us somewhere in the top 3 position by this year.

Next question is from Lin Win at VenaCapital, and it's for Bang. Bang, could you describe the impact of Decree 81 on the TCBS underwriting business and the volume in 2020 and what happened to market share there?

Sure. Good question. When we look at the 2020 results, we were -- our underwriting volume was up 18% year-over-year. So still saw very healthy issuance. Certainly, Decree 81 was something we were expecting and preparing for. A lot of that had to do with certain restrictions around how -- who could issue, it also had some restrictions on who could buy. But ultimately, as we evaluated it, it didn't have a significant impact on us as evidenced by, again, the volume and increase on underwriting. Importantly, a lot of the kind of conditions of 81 related to, again, issuances -- restrictions in terms of quality of the issue. And I think, for us, it's always been about focusing on the highest quality issuers, those that can come to market and as evidenced by who we've brought to market in the past. And this year, we also had a chance to add some new customers as well. So when we look actually what that -- the net result is looking at our bond business and all the related fees, that was up 39% year-over-year. So again, the limited impact, we did see a bit more issuance, again, a shift in issuance throughout the year just to respond to the customer needs. But ultimately, again, very pleased with the results for 2020.

Great. A follow-up question from Lin. Bang, could you also discuss Decree 153 and its impact on the bond business?

Sure. I think Decree 153 is actually more supportive, actually, of bond issuance as we head into 2021. Some of the provisions in Decree 83 have been relaxed. Some of this was around the size limitations on bonds as a percentage of equity. Some of it was related to the timing and spacing between transactions. This has been relaxed. And so now I think, ultimately, there are still some criteria that are important to maintaining kind of healthy quality of issuers in terms of having fulfilled all their debt obligations, for example, meeting certain requirements by law and ultimately having a clear and improved bond issuance plan. So those are all things, I think, again, are very consistent with the issues we've brought to market. I think, again, will allow for the continued healthy growth of the market. But ultimately, it's quite constructive and supportive. So for us, as we head into 2021, I think it won't have a significant impact on the types of bonds and issuers we brought to market. But I think overall, will help support the overall growth and expansion in 2021.

So does this decree then replace Decree 81?

Yes, it does.

Next question is from [indiscernible]. Jens, I think I'll combine a couple of questions here from Ian at KS Vietnam as well. And basically, this question is about we've heard that the SBV is only giving credit growth quota one quarter at a time. Could you discuss what your views are on Techcombank's credit growth and what the impact is that this one quarter at a time credit quota will have on you?

Yes. Thanks for the question. First, let me start with the second part of the question. So I think the fact that we're monitoring or that the quotas are given on a quarterly basis, I think, actually makes sense, given the volatility in the environment and even the banks are probably looking very much right now from quarter-to-quarter depending on how the situation evolves. So I think and monitoring it somewhat closer to be clear. When do you want to expand, when do you maybe want to tighten a little bit and I think makes sense. I don't think it will hinder the development of the banks very much. As I said, on our own, we are already planning this on a relatively short time line. In terms of the overall growth, the sector last year has grown at roughly 12% in our forecast, which bank shared, we think it will roughly be 14%. So we should see overall a larger sector growth. And for this year, if you then translate that what we did last year, and so we've grown roughly at 23%. So we were kind of given quota higher than the average just because of the strength of our balance sheet and because SBV knows that we can actually deploy these funds. So again, I cannot speak about the respective quota. But again, if you think about 12%, 14%, so higher sector growth. Overall, we have shown actually that we are happy and willing to support the economy with an expanded loan growth, and we were probably expected somewhere to be in that range, and I think that is what Bang also shared. But again, ultimately, it will be SBV who will make that decision in terms of quota.

And where would you expect to see the credit growth mix as you look at your overall portfolio?

So we had this year in very much large corporates. And the reason is because on consumer confidence as well as on SMEs where we're all very conservative. So we would actually expect that they are coming back as economy recovers. So we would rather see it on the retail side. We would see it in our business banking book. Again, some of the people we're still holding back on mortgages are taking up a new mortgage and buying a new car. So again, I think that's where we're seeing the growth mostly coming in. I believe what we've seen at least that some of the larger companies actually continued with their project portfolio. So that is what gave us the strength in 2020, but the others will be coming up again as the economy hopefully normalizes.

Okay. Next question. I'll combine it from Navis Capital and Thanh at Maybank, and this is on the housing sector. Jens, the housing sector is clearly an important sector for Techcombank. Could you share what you saw in 2020 any concerns that you have on this sector as we head in 2021 as well as update us on your progress for ramping up the other sectors?

So again, thanks for the question. The -- overall, the real estate sector held up very, very well. We have to see, right? And I think that comes back to comments we made in the past. We believe that from a secular trend, and there is demand for housing, for high-quality housing. And we also believe that as there are -- as the market is actually [ prodders ] relatively with liquidity that and asset classes are still sought after, that good housing is still an asset class people are going after. And last but not least, there is still this whole trend of people marrying, forming their own households. So there's a secular trend which actually favors the real estate sector. So from that perspective, we haven't seen a discontinuation of that trend. Maybe we have seen a slowdown in some of the projects. And we have seen that some disbursements of loans were kind of slower. Some disbursements in terms of projects were a little bit slower because, again, people were holding back a little bit. But again, we have not seen a massive slump. We also don't -- have not seen any depreciation in asset prices and all of that, which will all indicate a little bit of a real turmoil on the real estate side. So therefore, we are still actually maintaining that from even a secular trend, and real estate will continue to expand, and we will play our role in there. We will probably do not just primary mortgage, which is really lending on projects but probably also expand somewhere into the secondary mortgage as we start getting more and more understanding of the market, and we also get more understanding of development of prices and therefore, have a better feeling for collateral valuation. But as we also said, we want to expand into other areas. So the sectors, and we're looking in, especially on the corporate banking side is fast-moving consumer goods and utilities. Again, they are looking for project related on financing, which, again, is close to the expertise which we're having. But then also on the business banking side, I think we're looking to working capital, enhanced working capital and as economic activity comes up again. So again, we are very happy with the overall secular position of the real estate sector. It's still important, and we will continue to participate, but there are other areas which will just come up again as the economy normalizes.

We'll switch gears a little bit, but stay with the end-zone strategy and outlook. There's a question from Alex at Fiera Capital and Daniel Rupp at Overlook. And what are your areas of focus for 2021? What are the immediate opportunities and short-term risk for the bank? And then maybe you could then also follow into [indiscernible] question from EPF in terms of the -- where you see the banks in the next 5 to 10 years?

Okay. So that's a large expensive question. Okay. So let me start answering that. And so the immediate opportunities, again, I think as economy recovers, we said on business banking, there are additional projects. And on the retail banking side, we're looking very much in -- and focusing on the areas we have been unfocused on. So -- and we are seeing expansion potential in credit cards, and we're seeing clearly an enhancement or further enhancement in our CASA position and as more and more people are seeing the benefit of our digital platform, and we're also seeing a potential, as I said, on the secondary mortgage side. So I think just the areas which would expand in a normal expansion of the economy, be it consumer, be it business banking. And I think we see that as the most immediate opportunity. And we will probably stick very much, especially on the business bank, corporate banking side with our existing customers, who are seeing a higher or an increase in the utilization of their credit limits, which, again, we are happy to provide. And then also on the existing customers as they start feeling more economically confident and they start going and then reaching out for mortgages, for consumption loans that we will actually support them. So I think these are the immediate opportunities, I think, that will give us a very good and very healthy runway for this year. And that's why we believe in the guidance which Bang gave is we will -- assuming they are not really unprecedented or completely unexpected and developments, we will actually see a strong year. So in 2000 -- or let's say, 5 years, 10 years going forward, that's a different story. I think, ultimately, what we want to be is a larger bank. We believe that we have created capabilities, which we have focused very much on the upper segments. So affluent -- mass affluent and corporate banking, we believe that we can bring the strength to other segments. And so business banking, SME, mass affluent, upper mass, what we were lacking in the past were the right business models because we use very people-intensive business models, which require a certain size of the engagement. But if we are able to deliver that through technology, digital, leveraging data, where you're able to translate that into something which is much more scalable. And that is what we want to be. We want to be the relevant bank for a larger part of the population. We want to participate in the growth sector which are propelling the economy at large, which is really the bargaining middle class, which is the SME, and we will build the business models for that. So you would expect to see a bank which is maybe in terms of customers 2 or 3x larger, which is, in terms of balance sheet and all of that around 2 to 3x larger but which is still running that at the performance metrics of what we currently have because we are able to leverage technology to keep costs under control and also risk under control, which is one of the biggest areas we have. We were not comfortable in expanding in areas which we were not really understanding. But again, new technology, better understanding in terms of transaction behaviors allow us to go into different business models, and these business models will allow us to be economically viable when we go and bank with these customers. So again, larger and more scales at the performance levels -- the relative performance levels in terms of ROA, ROE, CIR of what you've seen from us over the last 5 years.

Great. Another question from Maybank, and again, it's for our CEO. You've been working with -- you worked at a Thai Bank who has gone through a digital transformation process. From your experience, what did you observe so far at Techcombank that will enable the bank to be successful in its digital transformation? And what are the challenges that you see facing the bank?

So the interesting experience is probably technology is the least of your concerns. The biggest elements you need for any successful transformation is I think you need actually commitment to really break down the existing business models and reinvent those. You need to be willing to really go all the way. That means end-to-end from the front end to the back end. And you actually also need to have the financial staying power. And these are not cheap exercises, and it's a little bit sometimes like repairing a plane while flying, right? So you still want to make sure the rest of the organization is still actually performing very well. And I believe all of these elements are actually very well in place at TCB at this point in time. So the first one is the commitment. And the way how we have invested in the past but also the commitment, and as demonstrated by the Board in terms of expanding the management team, bringing in new talent and all of that, I think, is a very clear signal. And I believe the kind of talent we were able to hire would not come based on empty promises. So I think the whole organization is geared up for quite some time to be ready and embracing change, which I think is a core element. And secondly, I think we have the ability and the understanding to really go from the front to the back. I think we have shown very clearly that we are able to create digital offerings, which are very attractive for our customers. That has demonstrated all the growth in number of customers, CASA. And I think this gives us confidence that we can take this to other areas, but we can also take it all the way to the back to be able to do this on a much more scalable infrastructure. And the last one, when we talk to the financial discipline, again, the fact that our performance has been as strong as it has been in the past, that we actually have been able to get this while maintaining cost discipline makes us very confident that we can deploy a program of around USD 500 million efficiently and with, let's say, the right return expectations in mind. And so if you have these 3 ingredients, which are, from my experience, probably the key to any successful transformation, I think we're actually in pretty good shape.

Great. Along those lines, [ Hua ] at Dragon Capital has a question on the -- what was $300 million in investment spending, and you -- I think you mentioned a number of $500 million in spending. Could you update us on the progress of that investment because from the outside, it's hard to see what the bank has spent it on? Obviously, the discussion about that $300 million had been around digitalization and being a leader in digital banking. So how do you see that investment helping move towards that goal?

So the -- it was always clear that the $300 million would be kind of a ramp-up over time. A lot of the money has gone in indeed in the front end, but there were also investments in really upgrading our core technology, our core bank. And why that is important is that what we've seen right now is that sometime back, just to be a little bit -- I mean, not really technical, but we had a peak load of roughly 60 transactions per second. And right now, our peak load is probably around 300 transactions per second. If you look out, I would say, in a couple of years, we will be at maybe 4,000 transaction per second. And you need an infrastructure which is able to actually support that. And we were already able to go from the 60 to the 300, which is a lot in the back. But now we need actually to go even further. And all the systems around you have to start interacting with that. And at the same point in time, we invested in things like asset management and anti-money laundering, AML, and we invested in areas like fraud detection, so systems, which, again, allow us to transact and have more customers at larger scale. And most of the investments, which we're earmarking going forward are going into data. They are going into an underwriting and credit architecture as we want to expand and making sure that we are able to deal with our customers and give the best prices. And there will be a lot of money invested into everything around CRM, digital marketing. So everything which allows us to interact with customers in the digital world, we will invest in helping our frontline staff to actually get all the information and all the support they need in order to advise our customers. And then last but not least, if we want to be at these 4,000 transactions per second and it goes up and up, we will move all our technology over the next couple of years to the cloud. So that is a major undertaking we're having -- and again, that's not what we did anywhere in the past. So the $500 million mostly goes and we're really making sure data, the middle office and as well as the overall core architecture is actually stable and scalable.

Okay. Thank you. The next question is for Bang from Maybank. In the -- the ROE thus far was 18%, which appears maybe a bit modest. Could you explain -- could you discuss what your -- what the plan is going forward and what actions management will take to get to that level for 2021 and beyond?

Sure. Thank you for that question. As we've shared with investors in the past, we've always believed that the business had the capability to generate on a steady state, roughly 20% type ROEs. We obviously raised a lot of capital in 2018 and have absorbed that capital now in terms of driving the business. But ultimately, the biggest limitation, if you will, will continue to be the credit limits from the State Bank. If you look at the difference in credit limit from 2019, 2020, the incremental credit limit allowed us to increase NII. That, again, was driving on the lower cost funding, but very fundamental to the strategy of our business. So when you look at all the key drivers and mix of business and areas of focus, target segments, diversity, fee income and nonfee income and the ability for us to manage some of the key cost levers, what that comes out to is the ability to generate and potential to generate 20% type ROEs. Hopefully this year, and going forward, as the economy recovers, we can continue to bring the strength of our balance sheet to the SBV, get the higher levels of credit limit that allows us again to further grow the business again and balance that against some of the other drivers. So, in short, I think what we've shared here, what Jens shared earlier in terms of strategy and what we can do between now and 2025, that 20% number is well within reach. Again, the limiting factor, again, is more the regulators.

All right. Bang, another question for you. What drove the increase in trading volume starting in September 2020? And this is from Daniel at Overlook.

Thanks, Daniel, for that question. I think it's hard to pin the increased volume to any one factor. But let me give it a shot on a couple of different things that we've shared in the past. And number 1 is ultimately, we've continued from our side to really focus on engaging further with investors. That's everything. From further outreach, we knew a lot of this was domestic investors we have committed to and now delivered greater engagement. We have 2 investor calls, 1 for institutional overseas investors, 1 in Vietnamese, which will take place tomorrow, which really is focused on engaging with domestic investors. So just on one hand, that's something we've been able to control and get out there and make sure we're in touch and engage with our different investor bases. The other thing is we continue to build up our IR capabilities as well is just increase the speed and timeliness of our disclosure and the quality of that disclosure. So as you can see how quickly we've come out this year compared to last year, just the timing between issuance of our financial release as well as then having -- coming out and having this analyst presentation, the fact is we'll continue to strive towards being best in market along those lines. But ultimately, I think what we've said before and hopefully, the market is seeing some of that now is the consistent delivery of financial performance over multiple quarters and, importantly, through what has been an incredibly challenging period of time for the market for, frankly, the globe, our ability to manage to deliver, support our customers and really leverage the various levers of our business strategy, all the while, again, maintaining a very strong balance sheet to support and weather the crisis and also capitalize on the opportunity we see ahead. So those are just some things that I do see now being seen in the market and how we've been able to differentiate. I did share earlier the -- some of the key operating metrics we look at and how that continues to differentiate us relative to our sector peers. So I think the market is certainly -- and importantly, the domestic market is starting to see that. And so again, as volume picks up and people are able to get in and out and see the benefits of that, I think that certainly is helpful. And then maybe the last point, and this is something that we can't take credit for but really are grateful to the government and their ability from the very beginning of last year to take a very deliberate and -- strategy in terms of containing the virus and really setting the stage for allowing the economy and companies like ourselves to really excel and support customers, while at the same time positioning ourselves for, again, what we expect to be a golden era in Vietnam. So I think all those things combined, when you look at just the overall activity interest in the Vietnamese market as a result of being able to manage this. And then clearly, the banking sector being a very good proxy for the recovery in economy, I think all of these things are slowly being absorbed and understood by the market and, importantly, in the domestic market.

Okay. Next question is for Jens from [ Min ] at WP. Jens, there's been reports of some further breakout of COVID in Vietnam just today, in fact. How do you see that? And how will the bank and the government deal with that, do you think?

So I think Bang talked a little bit about the successes so far. And I would assume and judging by track record, that what will happen is -- and like the one -- the outbreaks we had in Da Nang, like the one we had in Ho Chi Minh, that they will take the measures in a deliberate manner. So I think they will try to locate it and try to kind of put the circle around the containment area as close as possible but, on the other hand, also as big as required. So if that means and it can be locked down by streets, we can be locked down by cities or if really ultimately there would be a need, ultimately locking down the country, you would basically do it for, I don't know, 2 weeks, and it would be coming back up and then business would be as usual. So I think there are probably enough experiences right now outside of Vietnam that dragging on and doing things halfheartedly will probably not make anyone happy. So again, I think there are very good tracing and mechanism in place. There is very good testing in place. So again, we will see. But I'm pretty sure that the impact will be rather limited at this point in time. Just by the way, how the government will actually handle it. And there is also no debate amongst the population and what is the right measure. I think everyone already by hearing these news, starts to be cautious. And I think that probably is the best kind of contamination measure you can or decontamination measure you can actually take.

Okay. I think we have time for one more question, and I'll take this question from Daniel Rupp at Overlook Investments. His question is actually what has changed since the new CEO started? But I think we'll switch it around and not put Bang on the spot and I'll ask Jens. What has changed since you started?

I would say 99% is the same. What has changed, I think, is we're even more focused. I believe that in the end, this is just -- there's so much opportunity that sometimes you get a little bit kind of taken away because there are so many things what you can do. So I think one of the changes is we are right now, even more rigorously than before and are saying, what are we doing but even more importantly, what are we not doing? So I think the debates around, does it make sense, what are we doing, becomes more structured and more deliberate and sometimes maybe a little bit -- or I should say, a little bit harsher and clearer. And I think the other one is we are continuing on bringing talent in. As we said, some of the colleagues we've shown they come, but they also have other colleagues from beforehand. So I think there's a continuous ramp-up of this expertise, which is happening. A lot of this, and that's why I'm saying 99% has not yet taken hold. But the moment we deploy that additional experience towards an even more focused set of opportunities, we will probably see more impact and again, I think the strategy is now completely aligned all the way down or all the way from the BOD and down to what's happening in the branches or in individual teams. So I think this clarity probably should help us to execute going forward. But again, this is a bank who has executed tremendously over the last 5 years. So hopefully, we're not changing too much. And maybe the last but not the least one, from my past experience, data becomes probably a little bit more prominent than what it used to be. I think we're always talking about data excellence. But now we really talk about data as one of the core pillars of what we need to do and how we are actually using it. So that is probably another component that we really get our heads around that data is an asset -- is a company-wide asset and how are we using and how we're creating and how we're monetizing it. But again, I'm happy to say that I didn't need to change so much because the bank was actually and is in a really great place.

Great. Thank you, Jens. And that concludes our Q&A session and today's fiscal 2020 and Q4 earnings results. Thank you, everyone. And the replay will be available tomorrow on Techcombank's website. We hope to see you again in 3 months.