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

Good afternoon, and welcome to Techcombank's First Quarter 2022 Financial Results Presentation. We are pleased to report another strong quarter despite lingering difficulties related to the pandemic. Jens Lottner, CEO; and Alex Macaire, Group CFO, will share more details of the financial results and business updates with you, followed by a Q&A session. Jens and Alex will present in English with live Vietnamese translation available via separate link. As usual, we will have another call in Vietnamese tomorrow for retail investors. We expect today's presentation and Q&A to last about 90 minutes. With that, I'll turn it over to Jens to begin the presentation.

Good afternoon, everyone, and thanks for joining. These past couple of months have been quite tumultuous and a lot of kind of noise in the system. Let me start off by basically saying that the long-term trends, which are underpinning our strategy are completely intact. And what I mean with that is we still have a very fast-growing middle class. The middle class is looking for opportunities to invest, be it in real estate and be it in corporate bonds, be it in kind of good quality assets. And a lot of this and the delivery of these products will actually be anchored by large diversified conglomerates with good governance, which we will bank in order to actually manage entire the -- along the entire value chain. But there will be kind of in between volatility and I think is expected and, to a certain extent, also good because ultimately, some of that volatility is just done in order to clear up some of these extreme developments where sometimes market actors are going ahead of what the regulator is really intending. So from this perspective, again, I think we welcome come and what's currently going on, we believe that this will ultimately strengthen the strong players as we will get into an environment which in itself is actually on a much more sustainable development path and therefore, good players with good quality risk management, good products, customer focused will actually come out of it on top. As you can see from our quarter 1 results, a lot of these effects which you currently have seen have not affected us at all. We're actually still showing very strong revenue growth, and we are up year-on-year, roughly 13%. And we have strong growth on NII as well as NFI. And given that we also have been able to reduce our provision given the fact that COVID is coming down, our profit before tax is actually up by 23% year-on-year. Our return on assets is still strong, 3.6%, probably one of the best, not just in the industry but actually across ASEAN, which just shows that we are continuing to manage very, very efficiently our capital. And our CASA ratio, which is something which we watch very, very carefully is still at the record level, which we had and reported at the end of last quarter, and it's about 50%, especially we have seen growth in retail CASA. There were a lot of questions of if 0 fees are coming to everyone and as this is actually coming down and as a differentiating factor, will we maintain our strong position in CASA? And as you can see from these numbers, the answer is actually yes. So -- and again, we are still continuing on a very strong trajectory. And NPLs are stable. We will go a little bit deeper into it. But again, we expect that these numbers are holding very strong over the year. And our capital has even gone up a little bit. Again, one of the reasons for that is that we just put continuously our profits into equity, retain them as retained earnings and therefore, strengthen our capital base, which makes us probably one of the most solid financed institutions in the country. So these are the highlights for this quarter. Again, I think and I've said this at the AGM and probably this bank has been -- or is right now as strong as it has ever been. And then I will ask Alex to now go a little bit deeper into details on what is behind the numbers, what are the drivers before we then turn over to Q&A. Alex?

Thank you, Jens, and good afternoon, everyone. We'll start, as usual, with an overview of the Vietnamese economy. So we started the year, as you know, with a relatively optimistic outlook of 2022 and the macroeconomic trends so far have confirmed our provisions. GDP rebounded, reaching plus 5% for the second quarter in a row. We also saw improvement in retail sales in the PMI index and importantly, inflation remains under control. So all in all, it looks like the economy is gaining momentum without overheating, and this will create a supportive environment for investment and businesses. Let's look now at the financial highlights. As Jens said, it was a strong quarter. The bank is as efficient as it has ever been. You can see that in our net interest margin, in our return on assets, in our return on equity. And then beyond that, the top line is also strong. We are seeing a lot of credit demand from all areas of the business. And this quarter, we have also been quick in deploying our balance sheet, thanks to the optimization of our processes. So as you can see, this results in our NII growing by plus 32% year-on-year, our NFI growing by plus 24% year-on-year. The growth of the TOI excluding recoveries, was a bit slower at plus 15%. This reflects unrealized losses on our government bond portfolio which should largely be reversed later this year. Overall, given the headwinds we are seeing on our trading and investment income, we are quite satisfied with our PBT growth at plus 23% year-on-year. Our CASA, our NPL, our capital adequacy ratio are also in our target range and holding up well. So all in all, as Jens said, the bank is as healthy and as strong as it has ever been. It is heading in the right direction and at the right pace. Let's look at our PBT in a bit more details. As I mentioned, NII grew 32%, NFI grew 24% year-on-year. And together, those are the 2 core revenue engines of the bank, and they contributed an additional VND 2.4 trillion to our TOI. This was partly offset by an adverse variance on our other income, which, as you know, is traditionally more volatile. The driver was unrealized losses on our government bond portfolio following a widening of credit spreads. So those bonds are mainly required to be held in order to support the liquidity of the bank, and the government recently passed a regulation allowing these losses to be reversed. So therefore, we will record a benefit in the upcoming quarters. On OpEx, we continue to invest in talent, in marketing, in technology and this translates into a 21% growth year-on-year, which is in line with our transformation project. Finally, our provision expenses dropped significantly, dramatically by minus 74% year-on-year. This reflects a better economic outlook as well as the improving financial health of our customers. So all in all, recorded a PBT of VND 6.8 trillion for the quarter, which is on top of the previous quarter and on top of the same period of last year. We are well positioned to meet and hopefully to exceed the VND 27 trillion PBT target that we communicated in the previous AGM. This slide gives you more insights into the growth of our NII. As you can see, our interest earning assets grew by 34% year-on-year and by 9% quarter-on-quarter. A significant proportion of these new credit assets were structured in the form of bonds. This gives us more flexibility to distribute them at a later point, creating attractive investment opportunities for our retail and corporate customers. As you can see, asset yields, cost of funds, NIM, all stayed broadly stable at a level which positions Techcombank well above the rest of the industry. Let's look now at lending balances in a bit more detail. As I mentioned earlier, our bond portfolio increased significantly in the first quarter. This is the project of a conscious decision to grow our originate to distribute business model. On the one hand, the demand from our customers for credit was so strong that the bank could not have supported it with the sole resources of its balance sheet. And then beyond that, expanding the market of bonds with different tenors and the characteristics is important for TCBS. It's important for our wealth proposition and it's also important in order to create investment opportunities for our customers. And as long as it is done responsibly by actors like Techcombank, which apply the highest professional standards, we believe that this disintermediation of the economy is also in the interest of Vietnam as a country. In terms of lending segments, you can see that retail loans grew the fastest at plus 49% year-on-year, followed by SME loans at plus 29% year-on-year. So these trends reflect the continued priority on diversifying our credit exposure towards the retail and SME segment. This slide presents a view of our exposures by sector and product. So you can see on the left hand side that we have continued to diversify our corporate exposures. So we have essentially allocated comparatively more resources to FMCG, utilities, finance and other sectors and comparatively less to [indiscernible]. On retail, we grew, as I mentioned, our mortgage book by plus 49% year-on-year. This is the component of our credit book, which is probably the most profitable from a return on capital perspective. Finally, we are very satisfied with the growth of our card business. We registered a growth of plus 10% quarter-on-quarter, which shows that our investment in our digital platform is paying off from our propensity models to instant underwriting to dynamic limit management. Now a quick focus on deposits. Only 2 points to highlight here. First, on the left-hand side, the continued decrease in our deposit rates. So this reflects, as Jens alluded to, the focus on CASA but it's also a reflection of the fact that Techcombank is able to drive competitive advantages through other factors than the pure deposit rates. And the second point to highlight is that retail deposits continue to drive the progression of our CASA balances. And this is good news because these deposits are generally sticky, and they represent the best form of funding for the bank and considering their share continues to grow in our balance sheet is quite encouraging. I would also like to look at our NFI in a bit more detail. So overall, as I mentioned, our NFI grew plus 24% year-on-year, which is quite significant and satisfactory. We saw accelerated growth of 50% plus on our service fees. And I think that's something which could be easily missed. So we saw very strong demand on letters of credit, settlement, FX. So those revenue streams, as you can see, are growing quite steadily. It seems that our customers are acknowledging the investments we are making in our transaction banking platform and they are rewarding us by giving us a higher share of their business. Investment banking fees are also growing rapidly and steadily reaching VND 1 trillion for the first time this quarter. TCBS made it, we understand to the #4 position in the stock brokerage market, and we continue to dominate on bond origination. Meanwhile, if you look at the quarter-on-quarter trend, you will see a slowdown on Banca in the first quarter. The primary driver is the phasing of performance-related commissions with Manulife. But beyond that, our approach to the Banca business is based on a very thorough need analysis of our customers, and it's therefore very demanding in terms of face-to-face time with our customers. And because of the surge in Omicron cases in the first quarter, the customers were more reluctant to visit branches and at some point, up to 30% of our sales force was at home with COVID. And this reflected into a slowdown of our sales compared to the previous quarter. That said, the situation will get back to normal at some point, and we are very confident in our capacity to continue to grow this business to its full potential which we believe is very significant. Turning now to operating expenses. As you can see, we have continued our present approach to cost management. So whilst up 21% year-on-year, our operating expenses actually decreased a bit in the first quarter compared to the fourth quarter of last year. Staff costs edged up only slightly, and the other component of our cost base stayed stable or actually even decreased. On marketing, we deliberately saved a bit of our budget in order to amplify the effect of the launch of the new and exciting customer propositions, which are on our road map for 2022. Overall, we are very determined in our ambition to build one of the best and the most valuable banking brands in Asia. And we are very realistic about the fact that this will require some significant investment. A quick focus on asset quality metrics. So Jens alluded to it. As you can see, our credit costs continued to decrease in the first quarter, reaching only VND 0.2 trillion or 0.6% of our loan balances on the last 12 months. As for the NPL ratio, it remained stable at 0.7% on average and precisely 0.0% for our wholesale banking book. So we are aware that some investors have been concerned and Jens alluded to it in his introduction recently with the moves by the regulator to clamp down on certain unhealthy practices in the real estate and bond markets. So we welcome these interventions. And we hope that the figures we are presenting today will speak for themselves. So as far as we are concerned, nothing has changed. We remain very confident in the effectiveness of our risk selection processes. We know our clients extremely well. And the intensity of the demand we are seeing for credit at the moment means that we can afford to be even more selective when it comes to choosing the customers we want to bank with. And finally, at 161%, our loan coverage ratio remains one of the highest in the industry. And hopefully, it will give further confidence in the strength of our balance sheet. Restructured loans balances continued to decline, reaching VND 1.6 trillion, which is roughly 0.4% of our loan books. So many customers we are able to exit our COVID support program or pay down their loans. And we are very proud to have supported them up to that point. As you know, these restructuring loans are fully provisioned in our accounts in line with the risk profile of the customers. We already touched on the resilience of our balance sheet. On capital, we have added another VND 5.6 trillion to our equity during the quarter. We have also managed, as Jens said, to increase our capital adequacy ratio to 15.1%, and this, despite the fact that we have grown our credit books by 32% on an annualized rate basis. So this says something to the capital efficiency of the bank and its ability to drive profitability. On liquidity, both our key ratios remained comfortably below the regulatory limits. This is a slide where we benchmark our performance versus our peers. So the first comment we can make that this time there seems to be an improvement in the level of credit risk in the banking sector. And this is good news for the market as a whole. However, when it comes to operational efficiency, particularly the net interest margin, the cost of funds, the cost-to-income ratio and CASA, our competitive advantage remains intact and actually intended to even increase. Let's turn now to the full year '22 outlook with a quick focus on the '22 GDP growth. As you know, Vietnam was one of the very few countries in the world which managed to continue to grow throughout the pandemic, and its economy has proved very resilient so far. What we see that the economy and the borders have fully reopened. The population is fully vaccinated. There is a continued inflow of FDI, public investment is also on the rise. And tourism should soon act again as a powerful engine for growth. On that basis and whilst recognizing that the full impact of the conflict in Ukraine is unknown, we believe that the projections of the World Bank and the projections of the Asia Development Bank, which see a GDP growth between 5.3% and 6.5%, we believe that these projections are reasonable. And we also expect that inflation will remain under control. This slide also hasn't changed much since the last analyst presentation. Overall, credit growth in the system is forecasted to outpace deposits growth, again, albeit with a tighter margin compared to the previous years. The higher costing of imports might also exert some pressure on FX resources. And overall, we expect the liquidity in the banking system to be a bit tighter than in 2021 as reflected in the trend -- upward trend for interbank rates. We'll conclude with our guidance for the year ahead. Credit growth will be in line with the quota that we will receive from the State Bank of Vietnam. During the Annual General Meeting, we communicated with a growth of 15% because we wanted to be on the conservative side. Our net interest margin has been resilient so far. That said, we anticipate that there might be some downward pressure, particularly in deposit rates. Cost income ratio could increase as we continue to ramp up our investments in line with our transformation plan. That said, we will continue to manage it below the mid-30 level. NII and NFI growth should also be lower, a bit down compared to the very high base of 2021. But that said, we will continue to put our focus on diversifying from NII towards NFI. As for NPL and credit cost, that should stay remain -- that should remain broadly stable, maybe slightly higher for NPL. This concludes the formal part of this presentation. To all the employees, customers, shareholders who chose to trust us, we would like to thank you. And in return, we hope that we have been able to give you the peace of mind, but there is no other bank in Vietnam, which combined the same customer centricity, the same efficiency and the same balance sheet resilience like Techcombank. This is the promise of our brand, and we hope that the results that we published for the first quarter live up to that promise. We will make a pause and resume after that for the Q&A section. Thank you.

Thanks, Alex. We'll take a 10-minute break and resume with the Q&A session. If you have any questions, please continue to submit them to the Investor Relations team, and we'll get to as many as we can. [Break]

Welcome back to the Q&A session. We'll start things off with a question for Jens. What is management's view of the outlook for bond issuances in the real estate sector, given recent media reports of regulatory sanctions in these areas? Does this change your view? And will such sanctions impact the bank's business? This is from Thanh from Maybank.

Thank you for the question. So first, let's start with how do we look into the market -- or how we look at the markets. A strong -- or real estate is actually absolutely required and development of real estate is absolutely crucial for the development of the country. And we need infrastructure, we need commercial real estate, and we need private real estate as we start developing a broader middle class as we continue urbanization. And a lot of this is very much in line with what you've seen in other markets. So we need a strong real estate development, commercial as well as private. And secondly, we need a strong capital market. The capital market is absolutely crucial in order to find the financing for all the infrastructure projects, all the investments which are required in order to continue on our 6% to 7% GDP growth trajectory and get from being a frontier market to a developing economy to a middle income economy to a developed market. So from this perspective, and I think the secular trends, as I said in the beginning, are completely intact. We need that. And I think that is actually why the regulators right now have started to tightening some of the regulations because what they've seen is that some market participants probably have not behaved in a way that is responsible and reasonable thereby jeopardizing the development of these markets and then setting us all back. So if you look into real estate, it's not like that anyone, as [indiscernible] said, we should not develop the real estate market, but we should develop the real estate market responsibly. We should not create projects which are not getting developed. We should not drive land speculation. We should not give credit to people who are just doing it for flipping the assets and trying to bring up the prices again. And again, we should look into the corporate bond market to make sure that whoever is issuing on paper is very clear and also the investor is very clear, what is this money good for? Where will it be invested in? Are you having full transparency about the ability of the company, which is issuing the paper to fund the payback, et cetera, et cetera? So from this perspective, they were just some -- either maybe lacks regulation or people who are just not following the existing regulation. And I think that's where the government right now has rightfully started to intervene in order to make sure that these overheating and the volatility, its pacing reduced so that we can be on a steady growth path. So therefore, for us, and as we have participated in these markets that we actually helped to develop some of these markets, that is actually good news. And as I said, the secular trends are still there. We need strong frameworks. And within these strong frameworks, strong banks like ours can actually thrive. And therefore, we are not changing anything of our forecast. As you've seen, and some of the circulars were already debated last year and even while we were doing our plans. And therefore, they are reflected in our plans. And will there be maybe some turmoil, will there be an even kind of more volatility, I think that can well be expected. But again, I think from our perspective, and as you can see from our numbers, our bond business in the first quarter has been actually very, very strong. Our real estate business has been very, very strong. Our NPLs are very low and because we know how to run that business. So from our perspective, again, the markets are exactly the right markets to be in. It's right to correct them from time to time. I think the intervention is required. But again, it will probably leave us in a better position after this whole dust has settled than before. And because, again, I think it takes kind of the players who are not really following the rules out and give more confidence for all the other ones. I think there are no spillovers to some of the other markets, and especially what you've seen recently, the stock market again, also there was probably some overheating and some of that is what's happening right now on margin calls and people are kind of forced to sell. So that is all driving prices down in tandem with some of the other prices in other asset classes. Again, however, if you look into the strong companies, not just banks, but overall companies, you see that the underlying numbers are actually still very strong. You see actually earnings are going up and people are coming out of COVID and recovery is in full swing. So ultimately, while it will start separating things out, you will see that people will come reinvesting when they see that some of these investment opportunities right now are actually pretty cheap. So again, I would not expect that this will lead to a crisis. I think people will be coming back, it will take some time. But again, some of that might then also be more stable because this expectation of you can invest in whatever and it gives you 50% return over 3 months, that is if things are too good to be true, usually, they are not true. And I think that is what the regulators right now are trying to take out. So we might also ending up with more reasonable yield expectation, return expectations, which again is putting the foundations in for more sustainable developments on the capital markets, people will invest with a longer time horizon, et cetera, et cetera. So again, we are not too concerned. And would we like higher share price? I make this comment. I think we are completely undervalued. But again, at this point in time, there is a lot of noise and it will probably take some time to exactly and differentiate on what is noise and what is reality. And then after that has settled, I think we're going back on an even better trajectory.

The next question is from Min at [ Mira Assets ], and it's for Alex. Why did your NPL ratio not improve and is still flat at 0.7% when the economy seems to be recovering well posting a 5% GDP growth in the first quarter?

Yes. Thank you, Min. I agree it may seem counter intuitive, so let me share some further insights. So the way you should look at our NPL trend is in relation to the volume of loans in our COVID support program. And while the balances have been coming down quite nicely over the last few quarters, they still represent a noticeable proportion around 0.4% as I mentioned, of our total loan balances. And the regulations of the State Bank of Vietnam are quite tight and quite strict. But if a customer is late on a repayment due under the rescheduled term, even if it's for 1 day, that will have to be classified as NPL. And on top of that, if a customer is classified as NPL in another bank, they will also have to be classified as NPL with Techcombank. So those are factors which explain why it will take some time for the NPL balances to get back to normal. That said, as I mentioned, we have provisions -- we have booked 100% of the provisions required for these loans, which shows well beyond the requirement of the SBV, which is for 30% provisionally. So I hope this gives you further insights into what drives the trend for NPL and why it will still take a bit more time for NPL ratio to get back to normal.

Alex, as a follow-up to that, why did Techcombank guide NPL to be up to 1.5%? Does the bank really expect NPL to rise above 1% or as high as 1.5%?

Yes. No, thanks for this opportunity to clarify our guidance. So when we presented in the AGM, our forecast of 1.5% NPL ratio for 2022, we were intentionally conservative because we wanted to account for the possibility of unforeseen events, which could negatively affect our customers or negatively affect the performance of the bank. And if you look at previous years, during the peak of the COVID pandemic, our NPL forecast as presented in AGM was as high as 2%. So this year, we have revised it down to 1.5% in recognition of the fact that the overall economic environment has improved. But in recognition of the fact that also that there remains some risk factors, particularly in terms of the macroeconomic and geopolitical risk. So does it mean that we expect our NPL for 2022 to be as high as 1.5%? The answer is no. You should look at 1.5% as being a conservative upper limit and not the best estimate.

Next question is for Jens, and it's on the Bancassurance business. How would you rate Techcombank's Banca performance in the first quarter?

In probably the simplest terms, unsatisfactory and trailing. Let's be clear, we were #2 last year. And I think with that number, we are probably not at #2. And to be fair, there are some mitigants or some mitigation -- mitigating reasons why we are only at [ 218 ]. And I think some of that was really, as Alex already mentioned, we are having a business model which is very much relying on face-to-face interaction on giving the right advice. So when Omnicron was really hitting in full swing in the first quarter, it meant that some of our RMs were actually indisposed, couldn't be in the branches because they were just ill, but also -- and customers just didn't come. So if that would have been normal "probably we would have been higher than in the first quarter of 2021." However -- and I think you've seen that some of our competitors have been able to get to better results while still faced exactly with the same obstacles. So from that perspective, it's very clear that we need to adjust. And there are a couple of things which we are doing. And that's probably not the time here to go into detail, but there are a couple of adjustments. We are strengthening some of the channels. We are making some changes to our product offering. So again, I think we are still pretty confident that for the remainder of the year, we will be able to get back to where we want to be. And that's what we're saying. I mean, if you're -- have been #2, you don't want to be anywhere below that. Again, we should already seeing better results in quarter 2 and then quarter 3, quarter 4 following. But -- and it's very clear on that one, and we are trailing trend. But again, this is a quarter result. And I think it's not really anything to judge by for the remainder of the year, which should be much, much stronger.

Alex, the next question is from several people. So I'll combine it. The bank at the AGM guided for VND 27 trillion profit before tax. We also see that TCBS guided for up revenues, but down net profits after tax. Was this already built into the bank's guidance for the group? And how do we reconcile the seemingly different directional guidance?

Yes. Thank you. And I can understand why this may raise some questions. And my answer will be a bit similar to what I said earlier in relation to NPL. So when TCBS prepared their budget and presented to their AGM, they will do it with intentionally conservative assumptions. Now what does it mean for TCB now? When we presented our own forecast of VND 27 trillion in terms of PBT for 2022, we also applied a degree of prudence. That side, we did it in a holistic way, taking into account the diversification of our risk through all the components of our business. Therefore, the assumptions build and include and are consistent with the plan prepared by TCBS but that do not necessarily reflects the same degree on conservatism because if we did that, then we would add up the levels of buffers, and we would end up with a view which is excessively conservative. Now the question you may have is what is our internal view regarding our investment banking business for 2022? And the answer is simple. We want to continue to grow this business because it is strategic for the bank. That doesn't mean that we will not see some volatility along the way, and Jens was very clear about it. So some quarters, particularly for this business will be up, some quarters will be down. okay? But the way we will assess the performance is in terms of trend over a significant period of time. And we hope that the investors, analysts and shareholders will adopt the same approach.

Thanks, Alex. The next question is also for you around trading income, and it comes from [ Doug ] from Dragon Capital. What were the factors that led to the reversal of trading activities from a net income in the first quarter of 2021 to a net loss in the first quarter of 2022?

Yes. Thank you for this opportunity. And I will elaborate for a bit more on what I said during my presentation. So in very simple terms, in 2021, we made trading gains on our government bond portfolio. We anticipated the trend in the market, and we disposed some of our positions. And in 2022, the market went into the opposite direction. And we could not adjust our positions because the bonds are required to be held in order to support the liquidity of the bank. That said, as I mentioned earlier, the government passed the regulation, which allows the bank to reverse these losses. And we will, therefore, record a benefit in the upcoming quarter. For us, it's more like a phasing -- temporary phasing effect, and we will see the benefit in the following months.

Next question is for Jens. Is the VND 27 trillion PBT guidance based on a 15% credit quota by the SBV or a lower quota that was provided for Q1 granted by the SBV in the first round?

Thanks for the question. So the VND 27 trillion was, as we mentioned also in the AGM was based on the 15% quota. So the 15% quota comes ultimately from a comment and the guidance given by the State Bank, what they're saying they expect for the sector roughly 13.5% and 14% growth for the industry. So as usual, we assume that we are somewhat a little bit higher. But we usually don't put our plans in and basically assuming that we will be well above. And if we are, I think we take it and then we have the ability to actually disperse these loans. But again, that will all be much clearer during the year. And as you saw before and in the years before, we were at 23%, 22%. Again, this is all a little bit up to the regulator as the macroeconomic situation develops and as people or the banks are also showing their ability to disperse funds. So we'll see what's happening. But short answer it's VND 27 trillion is consistent with the 15%. And therefore, it starts translating into whatever PBT guidance we've given. And I think -- I know there were questions like, oh, why is this so low? And should it not be higher? As we also said is, of course, a higher loan quota might be coming with a slightly higher kind of profit. But of course, the profit will mostly be affected for the next year because given -- if you get the quota by the second half and then you are only able to take half of that in the first and the third quarter, there's only so much time you have in order to gain additional interest income. So the only way to actually get this really up will be around more fee income, and that will be around bonds, that will be around bancassurance. And as we said, we have relatively ambitious plans, but we also know that, as we said, for example, on the corporate bond side, that there are some -- there's just some volatility. So again, I think we rather continue to give guidance on something where we know and that is clearly within the ability of what we can handle and what we can manage and what is within our control. And usually, we used to be above that. But again, we are giving the guidance to the best what we can see, and therefore, abstaining a little bit from making remarks which in the end could happen but might not happen. So again, 15%, very much consistent with the guidance. EBIT goes up. If some of the other developments are showing a more positive development, I think we should be okay.

The next question is for Alex. It's on corporate bonds and interest rate increases. How do you manage your corporate bond book in a rising bond yield environment for both those on the Techcombank book and those in the bond funds managed by TCC. Has this affected how you manage your bond fund and the money flows in and out of the fund?

Yes. Thank you. Interesting questions and there are many different aspects to it. So let me maybe start with reminding people of our business model. It's very simple. We only issue bonds that we are comfortable holding to maturity because they meet our criteria for a very low risk of default. And then within this universe of bonds, we would only distribute bonds of the highest quality, therefore, applying if you want a second level of selection. Now to your question, the increased yield doesn't really change the way we look at the management of our corporate bond book because, again, those are bonds that we are comfortable holding to maturity. And actually, they were originated with this objective in mind. And because most of these bonds are not listed, they are actually accounted for in the same way as if it was loans. Now to Techcom Capital and our bond funds. So 90% of the bonds in our funds are actually listed, which means that they are marked to market on a daily basis, and the bonds which are not listed, are accounted for in the same way as in Techcombank books on a cost basis. So now with regards to the market trend, so we have obviously observed an increase in the volume of bond sales, and this has translated in an increase also of the yields. And the way we look at the surge of anxiety in the market is a bit like what we observed in April 2020 when investors were concerned with the impact of COVID on issuers. The yields went up. They stayed up for a period of time, 1 or 2 months, and then they went down and the situation went back to normal. So we expect that the same will happen again this year with the difference that the average yield in 2022 should still be slightly higher than what we observed in 2021 just because the interest rates in general tend to be higher.

Thanks, Alex. There's a follow-up from Credit Suisse and UBS. Could you share the underwriting and distribution volume and the associated fees for distribution and underwriting for the first quarter of this year compared to last year. Was it better or worse than the overall industry year-to-date?

Okay. Yes, it's an important part of our business, and it's also a sector in which we have been very successful. So I can totally understand why you are interested. I believe I have given quite a bit of detail during the presentation, and you can also see additional figures in the investor deck. So essentially, our bond underwriting fees went up by 132% year-on-year. And the other investment banking fees went up by 41% year-on-year. So as you can imagine, when you report these figures, you expect that your market share will go up. But I will be prudent like Jens, I don't want to emphasize too much the performance over one quarter because, again, one quarter is not a trend. What I am, however, comfortable saying is that when the regulatory environment gets tighter for the right reasons, then usually it plays to the advantage of the players who like Techcombank have always worked with the best issuers and have always applied the most stringent risk selection criteria. And I am comfortable saying that this is what you can see in the results published by Techcombank for the first quarter.

The next question is for Jens. TCBS is well known for its leading position in the bond market. Recently, there was a Circular 16 that put some additional regulations on this market. Do you regard the circular as a tightening of the bond trading activities? And what will be the impact on TCBS and the bank?

Thanks for the question. Again, let's look into the overall macroeconomic picture. Overall, and it's the declared goal of the government to increase and strengthen the bond market and the capital markets. So by 2025 the overall bond market should roughly be 20% of GDP, and it should actually go up to 25% by 2030. And as of today, it stands at 10%. So over the next 4 years, it should actually double of its current size, but if you also think that in between GDP will actually grow, it needs to be even more than double. So from that perspective, there is no limitation or whatever on that market, it's more like let's make sure that what we're building is actually built on strong fundamentals and therefore, it's built in a way that it is sustainable. And I think from that perspective, we can only say we wholeheartedly subscribe to that. So the regulations which are coming out, which are very much also talking about what is the right quality, is it rated, is it not rated, is it transparent? I think -- all our actions are geared towards making sure that this is actually the case. We did a strategic tie very recently with one of the rating agencies. But even more importantly, and I think over time, you need to reduce the role of the banks in that market. And why are a lot of the bond -- while are lot of the banks right now involved in a certain capacity not just as issuer but also afterwards is because there is no clear understanding what's the risk of these papers and will it be coming back, what's the liquidity in the secondary market. And banks step in to provide these kind of market maker functionality, provides liquidity, funding, et cetera. Over time, also banks are not interested in basically playing a very large role in that because then it defeats the purpose. If you also need to provide a lot of balance sheet and liquidity to keep these markets running, then you cannot really take things off your balance sheet and therefore have a different avenue for financing. So from that perspective, TCBS actually has started to create marketplaces online where individual can trade with each other so that they don't need to go through the banks, and that is actually increasing. And we are kind of trying to issue certain guarantees, which will just give more comfort to customers that they will actually not always give this instrument back, but keep it actually longer in their books and hold longer onto it. And because they don't feel that there's always this need to see if there's enough liquidity, et cetera, et cetera. So again, the way how we think about it, it should be a real market with deep liquidity, that liquidity building, that liquidity is actually one of our responsibilities. Over time, it should be less and less that the banks are actively stepping in, but we should just kind of be market matchmaker between interested parties who want to sell and buy. And again, with that in mind, I think TCBS is completely going into the right direction. And at the same point in time, we should also understand that TCBS, why they are very, very strong on the bond side, they also diversified their income stream significantly. So bonds used to contribute around 70% to 80%, and probably now it's rather 50% and there are other income sources. So from that perspective, again, I think TCBS is very well set up to kind of fully capture these emerging opportunities. As we said, we still believe it's probably the strongest broker house and bond issuer in the country. And therefore, whatever regulation is tightening all of this, it will just help us to actually maintain a very strong capital market, see the growth which the government is envisioning and us participating overproportionately in that development, which is exactly what our business plan for the next couple of years is trying to achieve.

Thanks, Jens. Follow-up on this is from Endurance Capital and PYN, about the reports that the State Bank of Vietnam has urged local banks to either limit or stop providing credit to real estate sector. How does this affect Techcombank's business plan and guidance for fiscal '22?

Again, if you read what the government is saying, there are probably 2 things, right? One is, there are clearly areas where they're saying we need a lot of support, right? These are especially areas which are affected by COVID like transportation, airlines and hospitality. But then, of course, there are also certain areas like manufacturing, et cetera, which clearly need support, need funding. And at the same point in time, they basically said, let's make sure that speculative funding of real estate, real estate projects which are only there in order to flip land, not really trying to develop projects, et cetera, that this should be very, very carefully monitored and banks should not participate in that. Doing real estate development or commercial real estate, real estate is also building industrial parks for FDIs, et cetera, there's no guidance at all from the Central Bank to basically not do anything of that. But they're doing it quite correctly, saying please be mindful, make sure that your risk management processes are very clear that they understand, is this a real project? Does it create value? Can it be financed? And does it come ultimately to an outcome where the end consumer will have an apartment, whatever they're looking for and where this whole project from a cash flow perspective is actually well financed. So that is what we are doing. And we have not seen any comments on the SBV that they're basically saying, we're doing the wrong thing and that they're basically saying, we're not dealing with that responsibly. Again, this is a discussion we continuously have with the regulator because, of course, we are a very big player in the real estate market. And therefore, these debates on how are we managing it and all of that is always every year very much under the scrutiny of SBV. But again, as I also said, we are not losing money there. We're looking very carefully in who is developing it. We look into the turnaround times of the projects. They're actually significantly shorter from kind of land acquisition all the way to completion and hand over to customers than in any other markets. So from that perspective, the guidance is clear. Let's make sure that this is built sustainably because it's such an important sector. Let's please also make sure that you find the financing for other very important areas, which is exactly why we are diversifying or building up our SME book, we're looking into an FMCG, where we're looking into utilities. So again, it's not doing anything or restricting us in any way compared to what we are intending to do.

Alex, could you share the weight of the real estate sector in your book? How is it projected to increase or decrease in 2022 and beyond? And then relating to the bonds held by TCB, what is their breakdown by sector? This is from [ Twan from BCBF ].

Yes. Thank you, [ Twan ], for your question. So I think I already provided some elements of information in this respect in -- during my presentation and also in the investor deck. So the information is public, and we publish it on a regular basis each quarter. So if you look at [ Recom ], what we call [ Recom ], which is real estate, construction and materials, then this represents 68% of our corporate exposures. And then on top of that, you have our mortgage book, which represents around 78% of our retail loans. It's debatable whether mortgages are part of the real estate exposures. They follow a different logic because here, the risk is on the income streams of the customers and not on the underlying health of the real estate sector. But anyway, this gives you a full picture. As Jens said, so we are looking to diversify our corporate exposures. This means that our [ Recom ] book should not grow as rapidly going forward as the other books, right, like utilities, finance or FMCG. And as Jens said, we remain fundamentally very comfortable with our real estate exposures. This is the bed work of any developing market. It supports the improvement of the infrastructure. It's also a source of revenue for a very wide and diversified ecosystem. And then when you take a long-term view on the economy of Vietnam, what you see is a fast-growing middle class. You see a population which is at an age where the primary investment objective is the acquisition of the first property, and you see also the need for accelerated urbanization. So all these are powerful secular trend, which will continue to support the development of this sector over the medium term.

Next question is for Jens. How is the relationship with Vingroup? And what is the outstanding credit exposure that you have to Vingroup and its subsidiaries and associates? What are the advantages and disadvantage of having this relationship with Vingroup? And related to that, I think there are some questions on your exposure to [indiscernible] FLC and [indiscernible] that have been in -- these companies have been in the news before. This comes from [indiscernible] from Mirae Asset.

Thanks for the question. As we've done in the past, and we will also do going forward, we will not comment on individual relationships. So -- and again, I think that's just normal practice. And regarding data privacy, et cetera, we're also not allowed to expose any of these information. So again, Vingroup, therefore, and how we're engaged with subsidiaries and all of that, unfortunately, I cannot share any information on that. I think what I can do is probably 2 things. One is we have concentration risk and concentration risk limits, and there are limits which are set by the regulator, their own internal limits. So for example, to an individual name, you cannot have more than 15% kind of exposure of your equity to group's, not more than 25%. And you really need to get to the ultimate [indiscernible]. You really need to understand who is ultimately the -- an entity which is responsible for paying back your debt. So all of that is actually under control. None of these limits are violated, broken. Everyone is looking into that. So therefore, from a concentration risk perspective, again, we manage our book very, very tightly. Now on the other hand, and I said this, yes, our strategy is to work very closely with some of the big conglomerates who are really right now probably doing 2 things. One is they're very reliable in terms of governance. And so because they are actually also publicly listed with a track record, et cetera. But also they are present in markets which are very much in line with our own target segment. So they are very much kind of going and benefiting and profiting from the evolving or developing middle class. And therefore, working together with them, it is just very synergistic because as these people are trying to get -- for example, if you take real estate, again, as they're trying to avail beat estate, a lot of them at this point in time, don't have enough funds. So therefore, they need financing as we can provide the financing. And we work very closely with the developers. We understand actually very much how these cash flows are happening, what is the risk, and how well is the project accepted. Are people really going after it, understand what our price is. Therefore, we can also advise customers in terms of how much they should actually invest into a plot of land, et cetera. So understanding the full value chain has benefits for every single one in that value chain from the end consumer to the anchor client as well as the bank. And that is what we are continuing to do, and we're not just doing it with Vingroup, but we have probably exposure to a lot of the largest companies in the country, and therefore, our book probably has a much higher concentration on large corporates than some of the other banks. And again, that is by design. But on the other hand, also, these conglomerates have diversified income streams. And again, during the crisis, actually, that has benefited them a lot because some were up, some were down. But overall, they were coming out of it with a relatively well-diversified income stream. So again, the advantage is, clearly, we have a better understanding of these clients. We can help them more, but they can also help us in other parts of the business as we have a better understanding of the risk. What is the downside? Well, the downside ultimately is that others also want to participate in these clients and therefore, it's competition for these very an attractive and customer relationships. So we just need to be on our toes. And we need to make sure that we are not competing on price but on value. But in my experience, usually working with the best actually allows you to develop your own capabilities and therefore, staying ahead and not just compete on price, that's I think why our margins are still as high as they are, and that's why it allows us to have capital efficiency, which is probably much better than the other ones.

Thank you, Jens. The next question is for Alex from [indiscernible] at HSC and [ Ruchira ] at AFC. What is the rescheduled loan balance for Techcombank at the moment? And how do you assess the ability of recovering these amounts and the impact later this year on the bank's balance sheet?

Yes. Thanks for your question. So I alluded to it in the presentation. Overall, Techcombank granted some rescheduling for a total balance of VND 11.8 trillion, right, during -- mostly during 2020, 2021. We didn't see any significant inflow into our customer relief program in 2022. So those were essentially during the peak of the COVID pandemic. And then as the financial health of our customers improved, the balances have gone down to VND 1.6 trillion or 0.4% of the outstanding loans at the end of the first quarter. And now to your question in terms of whether we anticipate any difficulty in recovering this amount. The answer is no. We have seen, as I said, some significant improvement of the -- and consistent improvement over the past quarters. And since then we have already fully provisioned these amounts in line with the risk profile of the customers. If we have any surprise, it could be probably positive rather than negative.

The next question is for Jens on customer experience from Thanh at Maybank. Techcombank is known for rapid customer base expansion. How can you ensure that the customer experience and satisfaction is maintained even during this fast period of growth?

So I think that's a good question. Ultimately, the key to it will just be are we able to standardize the experiences which people are having when they intact with us. And that means what happens in the branches, what happens in the call center and what happens on the app. And again, I think that's what we really need to work on that as we have more customers, and therefore, more customer interactions that these processes are getting much more standardized. Standardized ultimately mean probably we have to support it stronger with systems because as long as we then have the systems working means that we can kind of support our people either -- or the customers through a very structured interaction, which can be optimized over time as we get more and more feedback. So ultimately, again, it will be training as well as stable systems, which are supporting either customers directly or intermediated through our customers. Our NPS scores actually have been going up so we've seen actually quite an increase from 2020 -- end of 2020 to end of 2021. So if we really say NPS, our people once they intact with us recommending us to others, and it seems to be we're not having a problem even compared to all the other banks, the ultimate step from, okay, yes, I would like to use you again and I would like to recommend that to others is actually very, very high. So I think it's good on the other hand, I think also what we're clearly seeing is if sometimes this is not working, then you have exactly the negative impact. And again, there was a lot of noise around the stability of the app. And immediately, we see that impacting customer satisfaction. So we need just to make sure that these interactions are continuously at the highest possible level, and we cannot relend. But as long as we're doing this, as I said, growth or maintaining customer satisfaction even over these very strong periods of growth, which we had over the last couple of years doesn't seem to be a problem, but we seem actually to still go up and being stronger.

Next question is for Alex. Given the recent performance of the equity markets, could you comment on TCBS' management of bad debts and risk control in the margin lending business?

Yes. Good question. So essentially, the short story is that TCBS approach to margin lending is probably one of the most conservative amongst the top brokers in Vietnam. As an example, out of 250 stocks authorized for margin lending by the securities stock commission, SSC, only 100 of them would be -- will receive margin lending from TCBS because they meet the criteria for risk and volatility. And on top of that, TCBS would adjust its credit exposure to the profile of the investors providing more lending to those investors who have a longer holding period or lower leverage. The one you combine all that, this explains why our credit loss exposure and credit loss track record on margin lending activities has been close to 0 and is expected also to remain so for the foreseeable future.

Thanks. We have a few extra minutes, so we'll take a few more questions for Jens. First is the credit card loan balance increased strongly quarter-over-quarter, but the revenue declined. Could you share information on the segment and why this might have been?

Good question. I think there is -- the answer is relatively straightforward. I think we've seen with the issuance of our Signature card when we overhauled some of credit card programs that we were exposed to some very significant fraud. And the fraud were booked counter revenue. So people were going and trying to defraud the bank by abusing the card. And therefore, while we had more interactions, volumes were going up, et cetera. And it was very, very clear that we were kind of paying too high, so to speak, because people who are using it well outside our terms and conditions. And we expect that to be reset by the second quarter. So right now, we are in the process of getting that money back. So I would say you will see that there will be kind of an extraordinary high revenue in the next quarter. And then I think we have a better visibility for half year and then the full year, but there is this overhang in this quarter. And from that perspective, again, we are, I think, actually pretty happy how the card business is evolving. But that piece, that very specific piece is kind of not in line, and therefore, we need to take this fraud out. And again, the correction will probably happen this quarter or the quarter after next. But for the full year, we should see the full picture.

Thanks, Jens. The next question is from [indiscernible] from AP Alpha Investment Management. From my observation, Techcombank's marketing activities have seemed to be less visible than other banks such as Military Bank, VPBank and VIB. Could you comment on this if it's true and the reason behind that strategy in terms of competing for new customers versus your competition?

Thanks. I think it's a great question. It's a great observation. And there are probably 2 different aspects to it, right? One is I think the observation is correct. Our marketing was not as high as some of our competitors. And it's also below budget. And I think that is what Alex alluded to, that he said we actually wanted to have more. And we wanted to have, especially a lot of marketing around the new app, which we believe is really something which is very new in the market with a lot of differentiation. Again, there were some technical issues, which led to instability, which then basically led us to the conclusion, marketing this right now would actually be detrimental because we would invite even more people to experience that, which would potentially increase even more stability issues. So -- therefore, we kept that a little bit in the back pocket and therefore, didn't do this in the first quarter. But again, we will bring that back as some of the new offerings will be launched into market. So you would expect that quarter 2, quarter 3, quarter 4, you would actually see more of that activity and going forward. Again, the budgets are there. They are within the plan. We are under budget, but you will see more of that. But again, I think it's a very astute observation. Secondly, on the other hand, when we look into our overall acquisition efficiency when it comes especially to our target segments, affluent and mass affluent customers, we're actually seeing an increase. So we are actually more effective right now, and we see an absolute increase in numbers. So what is true, therefore, because of the marketing activities, why we might not be kind of acquiring everyone, let's say, in an undifferentiated if we would just count a number of customers in the higher-value segments, and we're actually acquiring more and cheaper than beforehand. So again, that's also probably a little bit different. We're looking very much into cost per acquisition for all these different segments. So therefore, even if we start spending more, you will see that they will be very much geared towards our target segments and therefore, might not be as broad brushed as some of our competitors. But yes, the answer is we wanted to spend more, and you should expect that this is going up.

We have time for about 2 more questions. In 2021, Techcombank offered zero fee also to its corporate customers. Could you explain the benefits of this scheme to the bank?

Of course. So zero fee, some of that is kind of general, some of that is introductory. But again, our point still is if we want to be the champion CASA, then like what we did on the retail side, we believe actually that ultimately stable funding CASA current accounts are actually really absolutely crucial to our strategy. What we are making on the fee side and compare to the benefits, which we would be receiving on the funding side, the funding side advantages would clearly outweigh the additional income on the fee side. And so from that perspective, again, we are evaluating it. And at this point in time, sometimes we are testing it. Sometimes it depends a little bit on the specific situation with an individual client. But again, we will always try to balance the two. But as I said, CASA growth is clearly top of our mind, and that's not just for retail, it's also for SME, mid-corporates. Large corporates is probably a little bit different, and so the discussion we're having is mostly around the kind of SME mid-corp segment and where we're thinking about what is the most appealing offer in order to become the primary banking or uphold the primary banking relationship with our customers. And therefore, that is what we need to trade off. And as we have done on the retail side, we're exploring the same opportunity in that segment.

And the last question is regarding the share price performance. As shareholders, we're frustrated that the bank's superior performance is not reflected in its valuation. The price to book is 1.3x, which is even 15% lower than the 5-year average. Do you have any plans to close this gap between market price and the fair value through buyback of shares or any other plans?

So I think given that I'm also a shareholder, I think we can probably speak on kind of with the same level of frustration. And I made this comment, is it -- is the share price kind of fairly reflecting our performance. And the answer is no. And I think -- and there are quite a couple of people here on the call who issued broker reports, so basically their own estimates. And very clear, if you run this through your models and you basically come out with your target share price compared to where the price right now is, there's a huge discrepancy, right? And again, the bank will continue to deliver the performance, and that's what we tried to explain today. And again, I'm very, very confident that we will have exactly the same debate in terms of strong underlying financial operational metrics, and we will continue to deliver. So the question indeed is, how do we bridge that? And there clearly is a difference between what retail investors are seeing and maybe what some of the professional investors are seeing. And as usual, sometimes people are reacting to some catalyst, right, to some events, if there are some kind of, oh, let's pay a dividend or let's do M&A or let's do share buyback and all of this. Now whenever you're doing this and considering that, the question is, is it the most efficient way? And is that now when you look really at the mathematics, is that actually the right thing to do? Or would it indeed appeal potentially to retail investors who might not -- who might react to other news than pure kind of economic rationale. And I think that is what we need to weigh. I think the Chairman made a comment, for example, on dividends, should we do and pay dividends, right? And it is actually inefficient as long as we are remaining and keeping that -- if we convert dividends just to share, basically in the stock dividend, it would cost 5% and it would not be any additional value. It's a pure transaction. The individual share would be cheaper. If that means the bank is more valuable, I think it's a big question mark, right? And if we start buying back shares and reducing kind of the equity base on all of this, do we still need the equity which we're having? I think the answer is as long as we are going on a 15%, 20% growth trajectory, as long as we're making 20% return on equity, I think it's the right thing to do because we can actually deploy capital effectively. So again, I really don't have a really good answer because, as I said, from the pure rationale from the pure economics, everyone who's looking at it with a professional investment mindset is clearly saying there's a huge difference between the intrinsic value of the stock and the stock price, which currently is reflected in the share price. And how to overcome that in a way that it's not basically just trying to push up the share price, but it's done in a way that it really creates value. And I think we're still trying to figure that out. I think we need to be better in communicating with the retail investors. We need to make sure that people understand why we are different, et cetera. Again, maybe that current markets cleanup and the share price tumbling down gives an opportunity to explain a little bit more what long-term investment is. But it seems to be that the retail investors are having more of a short-term mindset, reacting to kind of these events, which give them a quick ramp-up of the price. But again, I think that is some of the stuff which has -- right now, we acted to the regulator actually intervening because people have used that and abused that. So I think we know that the answer -- that the question is out there. And I probably don't have the best possible answer. The only thing what I can tell is we are not intending to do short-term measures just to prop up the share price. If it makes sense, if it's really creating shareholder value sustainably in the long term because we can optimize our funding, we can exchange Tier 1 to Tier 2, that one, we are looking absolutely into it. But again, doing measures which ultimately will not benefit shareholders, that is very hard. So we need probably then rather find communication, talk to people much more, maybe also the analysts here on the call can use and trying to share that perspective because, as I said, if you look into some of the broker reports from some of the biggest names, there's a huge difference. And because the underlying fundamentals, which justify and lead you to a very different share price, but it has not been reflected. So I understand your frustration, as I said, as a shareholder, I'm completely with you. I have not yet the best answer, but we're looking into it.

Thank you, Jens. This concludes the first quarter 2022 investor presentation. We will post the playback and the presentation on the website later today. See you next quarter.

Thank you.