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

Good afternoon, and welcome to Techcombank's Second Quarter 2022 Financial Results Presentation. We are pleased to report another strong quarter despite global macroeconomic headwinds, replacing the fading pandemic difficulties. Execution of the bank's 5-year strategy remains well on track. 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 a 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, and welcome to -- with that in the second quarter and analyst presentation. Again, what we will do is, and I'll quickly go through the highlights and then really give the floor to Alex Macaire, our CFO, to go into much more details regarding numbers. So overall, as we have said, it's another pretty strong quarter. And we saw a good TOI growth and year-on-year roughly 16.6%, and it was driven on both sides and NII and as well as NFI. And again, there were some extraordinary effects given the fact that we had very strong recoveries, but overall the main growth engines are pretty much intact. And PBT went up quite a bit, again, driven mostly by the provision expenses and the recoveries. And return on assets still stands strong at 3.6%. And on the CASA ratio, we got a little bit of a drop, which were mostly coming in, in June, because a lot of our customers started investing into other asset classes, but also because of the tightening credit book across the entire banking industry, where there was a repurposing of funds in order to make sure that business activities would just be continuing. So again -- and credit was not available, people took some of their savings. So again, we expect and that this will actually be coming back. But again, second quarter, we saw a tightening and probably in line with the market. NPLs are very much under control. And we see continuous improvement in our asset quality. So again, I think we went through COVID pretty well. And as we had reported beforehand and we believe actually that the book is pretty much under control and that we are probably seeing one of the strongest books in the industry. CAR has improved and some of that was as we were shifting towards retail and business in line with our strategy and the [indiscernible] consumption start shifting. And again, we think that should actually put some pretty good standing for and some of the expansions -- expansion strategies we are envisioning going forward. So overall, as I said, pretty much on track and strong results in line with what we had on kind of guided beforehand. So let me hand it over to Alex to give you more of the details. Alex, over to you.

Thank you, Jens, and good afternoon, everyone. Let's take a look first at the macroeconomic context. So as you can see, Vietnam's economy continued to accelerate during the second quarter of the year. The GDP annual growth rate reached 7.7% during the second quarter and averaged 6.4% for the first 6 months, which is one of the highest rates in the world. Retail sales also gained momentum with an annual growth rate of 7.9% on average for the first 6 months and even plus 24% for the month of June only. For the time being, inflation remains under control, that said, the strength of the rebound means that the Vietnam authorities are likely to take a more cautious policy stance going forward. Deposit rates have already gone up by around 10 to 30 basis points year-to-date in the market, and we expect that this trend could continue in the coming months. Let's look now at the financial highlights. So Jens mentioned some of them already. Overall, the bank continued to show strong momentum in the second quarter of the year. Both NFI and NII grew at a rate in excess of 25% over the first 6 months. We saw a lot of demand for our transaction investment services. Demand for our credit was also high. As a result, our customers, particularly the most affluent ones tended to keep less money in cash, driving our CASA ratio down a bit this quarter. However, having some volatility is normal. And as you know, our strategy is about the medium term and it's about building the best digital bank in Vietnam. Therefore, we remain comfortable with our direction of travel, all the more so as we have a number of new propositions and products which are going to go live in the coming months. Turning to efficiency. It was good to see that our ROE, our cost of income ratio and our NIM all remain at the top end of their historic range despite the higher interest rates. On risk, our NPL, as Jens mentioned, started to improve to 0.6%, in line with the economic recovery. Meanwhile, our capital adequacy ratio also strengthened to 15.7%, up from 15.1% at the end of the previous quarter. In short, it was a strong quarter for the bank. We managed to largely dampen the impact of the rising rates on our margins, and we were able also to offset the headwinds from our trading income. However, the context will continue to be challenging, and we are adjusting our actions accordingly. Let's look at our PBT in more details. As I mentioned, strong performance on NII, plus 25% year-on-year and NFI plus 29% year-on-year for the first 6 months. Our other income improved as well compared to Q1, although we continue to incur some losses on our government bond portfolio linked to the increased yields. As I mentioned during last quarter's presentation, some of these losses will be allowed to be reversed, thanks to a new regulation by the government, and we will record the benefits in the upcoming quarters. On OpEx, we continue to invest in talent, marketing and technology and the year-on-year growth of plus 24% for H1 is in line with our strategic plan. Finally, our provision expenses were down very significantly, minus 56% compared to the prior year, which reflects the improved financial health of our customers. And all in all, we recorded PBT of VND 7.3 trillion for Q2 and VND 14.1 trillion for the first 6 months of the year. This slide gives you more insight into the growth of our NII. As you can see, our interest earning assets grew 22% year-on-year and remained broadly flat quarter-on-quarter. Like other banks in Vietnam, we are now waiting for the regulator to communicate on the additional credit quota to the economy. In the meantime, we used the opportunity of the very strong demand for mortgages in the market in order to accelerate the diversification of our credit portfolio towards the retail segment. To do that, we essentially reinvested the credit quota freed up through the distribution of our corporate bonds. And as you can see, our portfolio of bonds decreased by VND 28 trillion quarter-on-quarter, and our customer loans increased by a similar amount. We have always been clear that we want to grow a stronger SME and retail business. These 2 businesses generate stable and capital-efficient revenue streams. And for these reasons, they also attract higher valuation multiples. And therefore, the fact that we are ahead of our plan to diversify our credit assets is good news. Regarding our funding, I explained the trend on CASA. As I said, we are very confident that the investments we are making and our products, propositions and platform will drive increasing CASA market share. However, it is a medium-term game. Overall, asset sales, cost of funds and LTM NIM all stayed broadly stable with adverse movements limited to about 10 basis points on average. Let's look now at lending balances in a bit more detail. So as I mentioned earlier, our retail exposures increased sharply during the second quarter, and our wholesale exposures reducing parallel by a similar amount. It is once again the product of a conscious decision to accelerate the diversification of our credit portfolios towards the retail and SME segments. Yields on secured retail loans are usually lower than those on corporate loans. And this is why you can see that our credit yields edged down a bit this quarter. That said, capital requirements are also lower, which means that you can usually generate more profits with the same amount of capital. Overall, we believe that the shift towards retail will provide the bank with a more diversified risk profile and a higher capital efficiency, therefore, enhancing its intrinsic value. So these slides present a view of our credit exposure by sector and product. You can see on the left-hand side that our corporate exposures have reduced, and we expect that this trend will continue in the second half of the year as we expand further into the retail and SME businesses. On retail, our growth for mortgage and credit cards reached plus 65% year-on-year. It is a significant amount of growth. And importantly, it has been achieved without compromising on margins or compromising on cost of risk. So it speaks positively, I think, about the strength of our customer franchise and also the strength of our underwriting processes. And with the investments we are making in loan origination systems, and in the digitization of our front and back-end processes, we are confident that there is still ample space to continue to scale up our retail business. Now a quick focus on deposits. A couple of points to highlight here. First, the fact that our average deposit rate increased marginally to 2.1% for the second quarter. As I mentioned earlier, we estimate that the term deposit rates in the market have increased between 10 and 30 basis points in the beginning of the year. And as you can see, the average impact on our own rate has been quite moderate. So there are a number of factors to explain that. First, our balanced pricing approach; secondly, the strength of our CASA franchise and then the optimization of our TAM funding structure. That's said we are clear about the fact that we see continued pressure in that space in the coming months. The second point to note is the reduction in our CASA deposits. As I noted earlier, we have seen some seasonality in the past, and it is to be expected. This year, the strength of the economic rebound, the pressure of the domestic consumption, the acceleration of the investment spend as reflected by the demand for credit though all these factors have contributed to amplify the seasonality. As I said, we are watching this trend closely and we remain confident with the direction of travel. I would like to also look at our NFI in a bit more detail. Overall, it's probably fair to say that the first 6 months of the year have been challenging. In Q1, if you remember, there was COVID wave 4, which impacted our Banca sales. In Q2, there's been an adverse market sentiment, which has affected pretty much all bond-related activities, and therefore, in this context, the fact that we have been able to grow our NFI by plus 29% is for me, testament to the strengths inherent in having a diversified business model. I will just mention a few highlights. So letters of credit were up plus 57% and cash & settlement fees were up plus 147% year-on-year. We made a number of investments in those 2 areas, including digitizing our processes, rolling out a new corporate mobile banking app and upgrading our trade services and working capital propositions. Cards were up plus 45% year-on-year. Our launch of instant credit card approval without document proved to be a game changer and the customer satisfaction rate is as high as 97%. Banca was up 32% year-on-year and up 83% quarter-on-quarter. We saw a strong rebound in -- after COVID wave 4, and we have continued to work with our partner, Manulife, in order to strengthen our underwriting and sales processes. And finally, IB fees grew 4% year-on-year and were slightly down quarter-on-quarter, due to an adverse market sentiment largely linked to prospective changes in the regulatory environment for the bond market. That said, the need for bonds are the way to fund the economy and the investment vehicle for our customers is not going to go away, it remains entirely there, and we are very confident with the perspective offered by this market in the medium term. Turning now to operating costs. So our level of expenses in Q2, as you can see, was broadly in line with the run rate for the last 3 quarters. Our cost income ratio remained at around 30% and the growth of our operating expenses for the first 6 months of '22 reached around 24%. This level, of course, is in line with our strategic plan and reflect the magnitude of our investments in digital, data and talent. This quarter, we offered again a raft of new experiences to our customers like automated bill payments through the mobile banking app, dynamic advice and nudges in apps through investment tracker and money tracker, a new mobile corporate banking app and paperless credit account opening in less than 5 minutes, and there is much more to come. A quick focus now on asset quality metrics. As you can see, a good trend. Our credit cost remained at a very low level in Q2, VND 0.4 trillion or 0.4% of credit balances on a rolling 12-month basis. The NPL ratio was also down to 0.6% in Q2. Compared to '21, our provision expenses, I mentioned that earlier, decreased by as much as 56%. Overall, the financial health of our customers continued to improve in Q2, enabling us to reverse some of the provision that we had booked in the previous quarters. And finally, at 172%, our loan coverage ratio is one of the highest in the industry and should provide further confidence in the strength of our balance sheet. Restructured loan balances declined sharply in Q2 to just VND 0.5 trillion or 0.1% of our total loan portfolios. It was good to see that most of our customers were able to exit the program or repay their loans. And it now seems that the end of our COVID support program is just around the corner after several months of working very closely with our customers in order to support them through those challenging times. We already touched on the resilience of our balance sheet. On capital, we added an additional VND 5.9 trillion to our equity, our CAR improved to 15.7%, up from 15.1% at the end of the previous quarter. And our liquidity ratios remain comfortably below the regulatory limits. Finally, a glimpse into how our performance compared to peers in the first quarter. Overall, there wasn't much change. I would say, as you can see, our competitive advantage on CASA, on cost of funds, on NIM remained very significant. So let's look now at the full year '22 outlook and the GP growth first. So as you can see and as you know, Vietnam was one of the few countries which managed to continue to grow throughout the pandemic, and it's proved extremely resilient so far. What we see that the inflation remains under control and there is positive outlook on domestic consumption, FDI, public spending and tourism. We, therefore maintain at this stage, our forecast, the GDP growth rate could be in the range of 6.5% to 7% for the whole year. At the same time, we do not deny but there are still significant uncertainties in the global environment, with the Russia, U.K., in conflict with the higher inflation and with the fears of; recessions in the U.S. and Europe, and therefore, we remain cautious. This slide hasn't changed much since the last analyst presentation. Overall, credit growth is expected to significantly outpace the deposit growth in 2022. The higher cost of imports should also translate into lower FX reserves. And overall, we expect the liquidity in the banking system to be tighter this year. And therefore, the increasing trend we've seen on interbank rate and deposit rates, this increasing trend should continue in the coming months. So what does it mean for our guidance, and the year ahead, so first credit growth will be in line with the credit quota we will receive from the State Bank of Vietnam. The net interest margin has been relatively resilient so far, but we expect downward pressure, particularly coming from the price of deposits. Cost income ratio could increase a bit as we continue to ramp up our investments NII and NFI growth rates should moderate from the very high base reached in 2021. And as for NPL and credit costs, we expect that they will stay broadly in the same ballpark, which is a very low level compared to the Vietnam industry. So this concludes our presentation Overall, the environment in the beginning of the year could have been easier, but we are satisfied with how the bank performed. The key points for me beyond the transitory headwinds in our market activity, the strong momentum in our core revenue engines, the high level of profitability, the improving cost of risk. And finally, and importantly, the accelerated shift of our credit exposure towards the retail segment, which carries the prospect of a more diversified risk profile going forward. So in short, we are satisfied and happy that the bank is heading for us in the right direction and at the right pace. We will take a short break before resuming for the Q&A section. So thank you for having listened to us.

Thank you, Alex. We will now take a 10-minute break, and return at 3:20 for the Q&A session. Please submit any additional questions to our IR team using the QR code or e-mail address at the bottom of your screen. [Break][Audio Gap]

And it's a broad macroeconomic question. What is Techcombank's view on the potential recession in the U.S., slowdown in the EU and China reopening in the second half of this year, particularly as we exit into fiscal year 2023. How will these assumptions affect Vietnam's economy, its banking sector and Techcombank's prospects in the year 2023?

So thanks for the question. I think overall, these are indeed relatively strong headwinds. On the other hand, as Alex has shown and we're still seeing a 6% to 7% on GDP growth at this point in time for Vietnam. So I think Vietnam is a little bit -- the lucky exception. And I think in terms of what's going on right now. And of course, there will be implications, which we are seeing. Clearly, some of the inflation in commodity prices, oil and steel, et cetera, will start having an impact. But on the other hand, again, we are not so much dependent like some of the other countries on some of these input prices. So even at a kind of $110 per barrel, and we probably still believe that headline inflation or CPI given the constituents of the basket will be rather 2.5% to 4%. So we don't see that inflation probably will be coming in as a major dampener. I think there could be a transmission mechanism via an exports. So if exports really taking an hit because of imports, reductions in -- our recession in parts of Europe or the U.S. But again, let's take a look into that. I'm not quite sure there are definitely scenarios where the whole situation in Ukraine, Russia and all of this could be going and completely off the rail. But again, I think that's not what we are seeing. And then hopefully, at one point in time also China will be coming out of their kind of lockdown and which again should actually give positive impetus to export growth. So overall, we were actually saying, we are still in a pretty good situation. And we believe actually that the government has a lot of room to help and maintain macroeconomics stability. I think we have a lot of and still positive consumption growth. And there's still a stimulus program and they could activate a lot of investments, which are still out there. So again, I think a 6% to 7% growth trajectory for this year, and potentially also for next year, I think, is still in the cards. However, there will probably be some reluctance to go further, right? And increase potentially and then put more kind of stimulus in or accelerate the situation or the pace of the expansion. And what I mean with that is, will we do and see an expansion credit growth? Will we see kind of that we're trying to really reduce an interest rates, et cetera, et cetera, which would spur more credit demand and therefore, actually more investments, et cetera. So I think the Central Bank probably will be a little bit more cautious. So again, I don't think that we will see a reduction of the numbers, which SBB has announced in the beginning of the year, but I don't also think that we will see an expansion in the credit quota and for the industry compared to what an SBB had communicated. So that means actually roughly on credit will be in line with probably is right now priced into the market. I think we will probably see that an interest rate will increase on both sides of the balance sheet. Just because -- and the funding will be pretty tight as Alex said. But on the other hand, also, if the corporate bond markets are still not so easy to be accessed and capital balance sheet or banking balance sheets are kind of a little bit constrained, then ultimately, rationing will happen through pricing. So again, I think overall, for the banking industry, good growth rates should also help on the NPL side because a lot of companies should actually be able to get back on their feet and expand their business. So that should help also with some of the -- and COVID recovery. Clearly, some areas will probably still be more effective. But overall, I think we are getting on a recovery path, which should actually be relatively stable and should provide at least for the banking industry a pretty healthy outlook for the next, I don't know, 12, 18 months. Again, bearing any unforeseen developments, which we could potentially have if and some of the developments in Europe are really getting out of hand. But overall, I would expect that some of the macroeconomic factors, which we described for the remainder of 2022 will also be somewhere the same like what we will see in 2023. And therefore, again, I think banks should as a proxy to the overall economy should actually faring pretty well.

Thanks, Jens. The next question is from Thao from VNDIRECT. And this follows up on what Jens talked about in terms of inflation. What are Techcombank's forecast of inflation both the headline CPI and core CPI? What are the key assumptions underlying that e.g. oil prices? And what are the implications on liquidity, monetary of fiscal stance, including policy interest rates and effective interest rates? This question will go to Alex, please.

Yes. So thank you, Thao. And I would agree that inflation is an important factor in the economic and monetary outlook for 2022. So to answer your question, our economic research currently estimates that inflation for 2022 should be around 3.5%. This is assuming a cost of oil of around $110. And this is also below the threshold from the SBV, which is around 4% for inflation. That said, as I mentioned during the presentation, we expect the liquidity in the banking system to be tighter in 2022. Several reasons for that, the fact that the credit will continue to grow faster than deposits. The lower FX inflows, so the fact that the liquid assets in the banking system are currently quite low. And overall, a higher reliance on short-term funding, open market operations and SBV swap facility for funding. So taking all that into account, our economic research estimates that the policy rates and the deposit rates could grow by around 50 basis points over the full year, maybe a bit more. And that the government bond yields could decrease by 130 basis points. That said, on the positive side, the recent upgrade of Vietnam by S&P also means that we can expect more interest from foreign investors in Vietnam. Therefore -- thereby easing up a bit the pressure on capital funding costs. And lastly, to your question about 2023, it's obviously a bit early to make reliable forecasts. All I can say that our economic research currently estimate that policy rates and deposit rates could continue to grow in a range of up to 50 basis points, maybe.

Thanks, Alex. Next question comes from [indiscernible] at VCBF, [indiscernible] at ML AIM and Doug from Dragon. How does the bank see the real estate landscape in the remaining quarters of 2022 and next year? And how will that affect Techcombank's lending policies? I'll ask Jens to answer this one, please.

Thanks. So overall, again, there's a lot of noise about real estate lending, et cetera. So I think, overall, what you're seeing even -- or because of that, the SBV is probably acting accordingly. We still see a lot of demand for housing, right? So first one is there is actually still -- and we said this again and again and again, as there is still a secular trend that we need more housing, affordable housing, social housing, but Attache Housing and at the higher end and also as an investment class, and especially for mass affluent and affluent customers. So I think the demand is still there. We've seen and especially, of course, in very kind of prime areas, be it an Ho Chi Minh city, be it in Hanoi, pretty steep increases demand for that prime and a state that's actually pretty high. And of course, that's where also a lot of developers are putting the efforts in. So a lot of the areas which were developed in Ho Chi Minh City and as well as in Hanoi are actually high end and above -- high-end apartments and above. Actually not so much lended properties and only a few and probably more in Hanoi. So overall, again, I think there's a lot of demand for housing for real estate. And I think it's up to the industry to provide solid financing for these developments and for that sector. And I think that's exactly where the regulators came in and basically make sure given the fact that it's such an important sector, let's just please make sure that we are developing it in a sustainable manner. And that we are not trying to do any shortcuts or leading to land speculation, et cetera, which is actually not really ultimately needing to what we need, which is actually more of a housing units. So from our side, 98%, we are actually and kind of not commercial real estate, but actually normal residential real estate. And a lot of our focus kind of close to 100% is actually Ho Chi Minh -- is Hanoi -- is high end. So on that one, we actually feel very comfortable that we're in the right place. And we continue to do exactly what we've done in the past. We're focusing very much on high-class developers and good quality and those which are able to have a very solid market position provide really good products where there is a lot of demand and because -- and if that's the case, then you see actually that the time from delivery to sales, cash flow and project risk, et cetera, are very, very limited. And so that's what we -- that's what we actually continue to do. Again, and I think for 2023 as Alex has said, probably it's a little bit early. And -- but again, I think what will still be true is that we will have demand for these -- for this asset class. And again, even if some of the prices have now started to be pretty high. And we just need to assume that this demand is continuing. So that would still basically put some kind of pressure on the one hand and on the pricing side. But on the other hand, also on the financing side. And even if some of the financing will be a little bit harder to access. And we still believe that I think it's at a market where we'll still see growth. But again and I think probably in a more -- a little bit more controlled way. And again, if there are regulations like we need to for example, if you access capital markets, you need to publish more, you need to be a little bit more transparent in terms of what we need to do, et cetera. That's what we did all the time anyway. And so from that perspective, again, I think we are still very kind of -- kind of comfortable that's the way how we are running our real estate and kind of portfolio on the corporate as well as on the retail side is actually a very, very solid business, gives us really good risk and weighted assets and that we will actually continue to expand that, but we're doing it very clearly in line with what the regulator is looking for and doing it in a way that we optimize our risk and our returns on risk-weighted assets. So and -- cut short, and I think there will still be demand. I think it's okay to make sure that we do it in the right way that some of the excesses in that sector are getting under control. I think it's okay to -- and for having some of the players and just really taking a hard look, do these kind of projects makes sense. Are we making sure that we're not just speculating, are we really creating housing units because that's what's required and as long as that's happening, and we will clearly play a very active part in that part of the economy.

Thanks, Jens. The next question is for Alex. Could you share more details about the retail loan book and your outlook for the second half and fiscal year 2023. Specifically, within the retail book, how is the split between primary versus secondary mortgages in the recent quarters and in the future -- in the upcoming quarters. And then following up on Jens, given that we are rotating the loan book from wholesale corporate loans and bonds to more mortgages on the retail side, what is the return -- what is the difference in terms of return on risk-weighted assets of those 2 books? And this comes from [indiscernible] at Temasek and [ Kane ] from KIM.

Yes, thank you for this question. And you have indeed correctly picked up one of the significant trends of our performance this quarter, which is the accelerated shift toward the retail business. So as I mentioned and as Jens also explained, we expect that the growth of our mortgage and retail books will continue to outpace the growth of our other credit books in the second half of the year. There are several factors which allow us to predict that. First, the volume of units, which will be made available in the market in the coming months. And then beyond that, the very strong demand for mortgages, as Jens mentioned. Regarding your question about the split between primary and secondary mortgages, you can essentially consider that the quarter-on-quarter growth in our mortgage balances was driven entirely by primary mortgages. Now to your question about returns. So it's too early, clearly, to assess the full profitability of the new business we wrote in the second quarter, just because it takes time to cross-sell, to upsell and to ultimately fully develop the relationship with our customers. That said, to keep things simple both our wholesale recon books and our mortgage books. So these 2 books are both accretive to the bank's average return on capital. But the big difference, obviously, is that the retail books have the added benefit of bringing a higher risk diversification to the bank.

Thank you, Alex. The next question will be directed at Jens. Could you elaborate on the potential impact of the amended draft Circular 39? And how will this affect Techcombank's lending activities. This comes from [indiscernible] at Viet Cap.

Sure. Thanks for the question. Again, I think whenever we have these drafts, we never know exactly and how it will end up, right? But let's -- from the probably simplest perspective, I would say, and the idea is to kind of reduce to a certain extent, the ability to do kind of financial leverage. And at the same point in time, we need to be clear what is the purpose of the funds and you're taking up, right? And again, exactly kind of if it's for the right purposes and by all means, but if it's was done a little bit in order to increase in financial leverage, especially in certain parts then it's a little bit kind of making this more difficult. So therefore, by definition, you have -- and kind of on two sides of the equation, right? You have the ones where you're saying, oh, more lending customers because there are more kind of areas which are allowed banks that you can lend for these purposes. On the other hand, for those other purposes, there will be a restriction. So the question is, in what parts of the business have you worked. So again, I think there will -- probably in the short term, there will not be a big impact, but we could expect that, especially in the real estate market, there would be some changes because some of that funding, again, we saw and when it came to basically creating kind of state transfer of partnerships, with pension capital and all of that, somewhat deleveraging. I think that's where it was a little bit originating from. And from our perspective is we always work with very, very strong financial partners. So the kind of purposes or the questions on -- right now have been raised for areas where you cannot know -- where we cannot actually extend credit in order to facilitate that, that was not probably things we were doing very much in the beginning because we looked actually already from the beginning, very thoroughly the financial and situation health and all of that. So if Circular 39 is basically looking for making sure that a lender -- that we are not taking any kind of excessive risk, we are actually pretty -- then we are pretty okay. At the same point in time, we actually continuously enhance our capabilities in order to make sure that we can actually do and provide alternatives, right? And really listed bonds with clear transparency is there M&A opportunities on bridge loans and guarantees for international loans, et cetera, where we actually see that there is an expansion of the business opportunity. So from our perspective, again, we understand where the regulator is coming from. And we believe, again, we need to shift the business model somewhat. But overall, there will probably be ample opportunities also going forward. And as long as we're doing it and with the right measures, we have the right capabilities and especially the right risk management in place. So again, that is a comment on the current draft, probably that draft will still go some or undergo some changes, although we actually believe will only be minor changes. But again,on short term, not so much and in the medium, probably to the longer term, we just need to adjust the business models, which are completely okay for us.

Great. The next question is also for Jens. Could you discuss the lower retail cost that we saw in the quarter? And whether you see this as impacting management should be longer-term view about greater than 50% CASA ratio by the end of the year. This comes from JPMorgan and also Andrew from Halo Capital.

Sure. I think it's a good question and we always kind of stress the fact that this is a very, very important ratio for us. So what we saw is actually until April, we got kind of a 7% increase in [ ITA ] CASA. And then we saw a change in May and in June. And actually, to a certain extent, that is a trend which probably a lot of other banks also have seen across the industry. And as I said, I think some of that were driven by the fact that there was a shift into other asset classes, right, especially real estate, especially [indiscernible] securities especially on the real estate side as people start accumulating funds and then started to deploy them into these other asset classes. And so that's basically brought the ratio down. And on the other hand, there was also, let's say, a little bit more on business, smaller businesses who started using some of the kind of deposits. And for financing the business as credit became tighter, right? So -- and it's very clear as and it was a little bit harder to access funding through the banks, and they were just at tapping into your own and liquid funds, and they were basically started redeployed into the business. So as I said, are we expecting that overall and that our -- the targets we have set will not be unachievable? The answer is no. I think -- and we made this point before, and there's a lot of reasons which are driving CASA, some of that is really just the necessity for transactions. It's a question of what kind of solutions are you providing on the digital side and how easy is it to transact, et cetera, et cetera. Also what other asset classes you have because if -- like on mortgage, like on securities, if you want to go in and out of these different asset classes and sometimes one or the others are more interesting, you start accumulating at a certain point in time, and then you start investing. Those who are divest will also have then suddenly and liquidity available. So overall, as long as you are part of that overall value chain of investment and divestment, you will always have a certain amount of liquidity, which will actually stay with you. And given the fact that we have such a strong customer base, especially on the mass affluent, affluent and also part of our wealth management strategy is to provide a wide range of products so that this kind of parked liquidity will always stay with us and doesn't need to go up. So from that perspective, yes, we would like these numbers to go up. But with our investments, wealth management, our investments in SME, our investment in transaction banking capabilities, we expect this number to go up, but you should also be clear, competition will get stronger. So we just need to make sure that we are shaping up our offerings. And -- but there's no reason to assume that the target which we have set also within 2025 of the 55% that we are not going after that. And that we're not achieving it or even that at the end of the year, the number will be back to where we used to be at the end of last year or even be higher. Again, some of that is also a little bit dependent on the overall liquidity situation and the liquidity management from SBV. So it's a bit hard to forecast exactly but as I said, these secular trends and what we are trying to do as well as the strategic importance, nothing has changed. So we see that and as has Alex said, there is a volatility and we are not managing these things quarter-by-quarter. And we're just managing that an overall, the trend should be okay. And I think on that were still okay.

Great. The next question is for Alex and it relates to cost of funds and yields. Could you discuss the average rates for CASA, term deposits and the cost of other sources of funds in the second quarter? And how did those change versus the first quarter and the same period last year. And then as a another follow-up on that is, why did asset yields decline when interest rates in general went up as seen by a higher cost of fund? And this comes from JPMorgan and Lean at New Silk Road.

Yes. Thank you for this opportunity to come back to our NIM because it's probably of interest to a lot of us around this call. So as I mentioned during the presentation, our cost of funds for the second quarter was 2.3%. In the first quarter, it was 2.2%. And in the second quarter of 2021, it was also 2.2%. So this gives you an idea of the impact of the increase in term deposit rates interbank, cost and syndicated loan funding. So I also mentioned that the term deposit rates in the market has increased between 10 and 30 basis points year-to-date. And you can see in the presentation via the chart on the variance of the interbank rate and you can see that the growth year-to-date is around 60 basis points. So that, hopefully, will give you more context about what's happening in the market on the funding side and also how it impacts our cost of funds. Now when it comes to your question on credit yields, so essentially, what we've done is that we have replaced long-term corporate bonds with primary mortgages, which typically yield a lower return, right? But at the same time, they also attract a much lower risk weight. And therefore, you need to look at it from a full profitability perspective. And from this point of view, whether you look at the return on capital whether you look at the risk profile of the bank, things that shift towards retail segment and mortgages is a good thing for Techcombank. Even if it comes at a cost of a slight decrease in the average credit yields.

Great. The next question is for Jens. Could you please provide updates on the key digital and data initiatives in the second quarter. And again, what are the metrics that Techcombank uses to evaluate the digital transformation progress? This comes from Worawat at Credit Suisse and Kato from EFG.

Sure. Again, a lot of this we talked before and but -- and let's be probably a little bit more specific on what happened in the second quarter. So -- and we are working on the key mobile banking platform. So -- and they are in the market on the retail side as well as on the corporate bank side. On the retail side and probably right now, we have around 70% of our customers migrated. So we see actually a pretty good uptick. The app is rated 4.7 out of 5, which makes it one of the highest-rated apps in the market. There's a lot of new stuff on it in terms of functionality probably it's by far in the richest in the Vietnamese market. And again, we continuously bring new stuff on it. For us, the most important piece right now is now we start connecting actually intelligence into the app, meaning we can actually now start reaching out to our customers in a much targeted manner, and giving them not just what to do and where to invest and what other business opportunities they have to invest their money and also interact more with the bank. So again, I think the front end right now is getting to a level of stability and reach, which is where we want it to be, and now we really need to sure that there's more intelligence coming out of that app and out of that interaction. On the mobile banking side and on the mobile corporate banking side, again, and we have [ V-platform ], there is the new platform out, there new -- and mobile app as well. And again, I think we're seeing pretty good an uptick on that. So right now, when it comes to online term deposits transaction and online term deposits are up 40% and transactions are up 20%. So again, I think we have not fully rolled out yet, and that only comes at the end of the year with all functionality and then uptick and upgrade. But again, I think it moves according to what we have in mind. And from -- on both sides on these areas, we have probably around 400, 500 people working on it. So again, I think the idea is still over the next 12 to 18 months to make sure that we really start in creating more and more differentiation on that digital channel and that we are also able to actually reach out to other customer groups and much, much more and actively. At the same point in time, we're not just using it or I should say, in the -- on the kind of purely digital interface, but we also created a new portal for our employees, which allows them actually to take the branch outside. And so -- and that is a portal which actually is using the same technology platform, the same micro services and start putting it on a tablet and then that tablet allows us to go to malls, to micromarketing sites outside of the branches in order to make sure that we can still reach out to customers because probably like all the other banks as well, we've seen due to COVID, a massive reduction in the branch traffic, and why we still believe that there is actually a need for human interactions. But again, the question is, are we still doing it all in the branch? Or are we having more options for people to go to? So that's -- and we took out. Right now, we are having that tool within 3 to 5 minutes, we can open up a complete set of -- or a complete banking relationship with a set of different products, that has been rolled out to all the branches in the second quarter. And then in the second half, we will actually also make sure that credit card applications are on it and customer information, et cetera. So we can do more and more things on that, which means we can actually provide these kind of services wherever it's convenient for the customer. And then last but not least, as we said, and it's not just about servicing and all of that, it's a lot about also giving the ability to purchase products online. So on the SmartCredit, which is this new capability where we start underwriting straight out of kind of systems, which are backed by our own data, but also external data and also kind of using machine learning algorithms in order to make sure that we constantly improve our underwriting precision. And -- so that SmartCredit system actually has worked pretty, pretty well. We launched it kind of the next step in April of '22. So for that right now in the second quarter, and we, for example, saw an improvement in terms of credit cards opened by around 140%. So again, whenever we have these capabilities right now where we actually see that we see not just incremental change, but 5 to 7x more applications and 5 to 7x more interaction, et cetera. So we really believe we are actually on the right track. Now when it comes to the kind of -- how do we measure results, right? And some of that, of course, is a little bit hard to say, and more difficult to say because some of that only comes at the end, right? If you're sending, okay, how many more credit cards do I see? And how many more credit cards do I issue, and that's a little bit like a lagging indicator, right? So for us, it's a lot about are we reducing an onboarding time, right? And how often do really our customers interact with us? What is the kind of download rate, et cetera? So what's our -- some of the NPS scores? Because then ultimately, the rest will just follow, right? So we look actually into customer engagement data, our customer behavior and then really pure kind of operating metrics, financial results. And again, in terms of the engagement probably it's rather -- how easy is it to use the mobile and banking app, what's the feedback on that, on behaviors how many customers do we have on the E-channel? How often they are using it? It's right, what's the number of online transactions and how much we're acquiring through the digital channels, right? So how many customers are joining us through an EK receipt process. And then in the last one, when we look through operating metrics, it's the conversion rates and number of CASA accounts, number of term deposits and average balances, et cetera. So these are the kind of things which are measuring quite religiously. And again, some of them, as you would expect, there's a good mix of cards, a lot of them are actually green. And there are some orange, but sometimes there are also some reds. But for us, the most important piece is that we understand red as quickly as possible. And why is it's red and not according to our expectations. And then is there something we can do or do we make or did we have certain assumptions just not correct, and therefore, need to adjust, but again, I think overall and at least after we had some of the stability issues, which I commented in the last quarter, I think we're actually on a pretty good track to start and seeing an acceleration of our digital capabilities and therefore, also our digital outreach to customers and our ability to bank new customers and put new customers on to our platform.

Great. Thanks, Jens. And thanks for all the questions that are coming in. We're combining them and in the interest of time, we're -- just as a time check, we're going to try to end the Q&A at 4:30. So bear with us. The next question is on foreign exchange and interest hedging, and this is directed towards Alex. What is your -- given the recent announcement of successful syndicated loan and the one that you did last year, what is your USD and other foreign currency denominated liability at the end of the second quarter? How much was the syndicated loan as the part of the total? And how do you hedge for FX? And how do you hedge for increases in interest rates given that SOFR and LIBOR have been moving up recently. This comes from [indiscernible] at VCBF and Worawat at Credit Suisse.

Yes. Thanks for this, and let me elaborate a bit on our FX exposure. So overall, we have around VND 100 trillion of foreign-denominated liabilities. Those liabilities include our syndicated loans and are mostly in U.S. dollar. And against these liabilities, we have VND 90 trillion of foreign-denominated assets, which, again, are mostly in U.S. dollars and provide a natural hedge Therefore, what we have left with is a natural position of around VND 10 trillion, which is fully hedged via FX swaps. Therefore, our residual FX exposure is practically negligible. Now the -- regarding the question around the impact of rising interest rates. So as I mentioned, we have a natural hedge between our assets and liabilities in U.S. dollars. And as for the residual exposure, it is essentially aggregated with our other interest rate exposure and manage holistically via our ALM, where we would look at various indicators of exposure to interest rates. And then I think there was a question also about the level of the interest rate and the cost, therefore, the wholesale funding and whether it's still a competitive advantage. So our view is that it is still a competitive advantage because it would be very difficult for Techcombank and actually for any bank to raise medium to long-term funding in the domestic market for this kind of size. And if we are able to do that, it would come at a significantly higher price. So I hope this gives you a broad understanding of how we think of our FX exposure, how we manage them. And what is the cost of funding and the implications of raising funding overseas.

Thanks, Alex. Next question is for Jens. When do you expect to receive a new credit quarter for this year? And you touched on the credit growth quota of 15% for the -- minimum 15% for the credit growth for the year, how do you handicap the odds of it being less than 15%. This is from Doug at Dragon.

So thanks for the question. Again, I -- as we said, we -- some of that, we really don't know because I think right now, and given all the uncertainties as we, is we're also looking at all of the macroeconomic factors and think about where is inflation heading, where's GDP heading, et cetera. So I would expect probably somewhere in August that we will get an indication of where we're heading. We know that probably overall, the banking industry is pretty much maxed out in terms of when it comes to kind of bank balance sheet. So again, at this point in time, probably everyone is already holding a little bit back. So by August, probably there will be something coming out. But again, I think that's really SBV's prerogative. The question is, are we still maintaining the 15% planning scenario, yes, we do. And we believe the fact what we've done in the past, our performance, our capital, et cetera. When it comes to that, we should be granted these kind of half quarter, given the fact we're actually still a very important credit provider and to the industry and supporting customers and the economy. So again, I think the ball is pretty much in SBV's court. But again, at this point in time, we're still maintaining our 15% planning scenario.

Okay. Thanks, Jens. Next question is for Alex. Could you comment on other investment banking services and overall TCBS points in the second quarter? Was it in line with your internal target and guidance. What is your second half outlook? And what are the drivers? And related to that is it looks like TCBS market share gain were slower into second quarter. And how does -- how do you see the 2% additional market share gain per annum in the 2022 to 2025 period target that had been discussed before? This comes from [indiscernible] at Van Kampen Asset Management.

Yes. Thank you, and I appreciate your interest in TCBS, which is a key component of our businesses. So to answer your first question, yes, the performance of TCBS and investment banking more generally in the first half of the year and in the second quarter, more specifically, was in line with -- broadly with our internal targets. Regarding the second half of the year. So we expect some improvements driven by more liquidity in the origination and distribution of bonds. Now with your second question around whether we maintain our objective to grow our market share on equity trading by 2% per annum in the period between 2022 and 2025. Yes. For the time being, we stick with this objective, there are few reasons to believe in our capacity to grow -- continue to grow our market share, the fact that we will launch a new partnerships with institutional customers, the fact that we will enhance the features of our mobile app -- mobile trading app, the fact also that we will work on the opening of accounts digitally, thereby driving more new customers to our platforms. And more generally, the fact that we will keep putting out in the market innovative products and propositions. To give you a few examples. So we launched [indiscernible], which is essentially a new proposition by which retail investors have the opportunity to copy or replicate the investment strategy of successful traders. And this helped drive up the traffic on our platforms very significantly. We were also the first in Vietnam to use blockchain in order to secure the transactions on our bond trading platforms and there is much more to come. So overall, we are very confident in our capacity to continue to grow our sources of earnings and investment banking beyond bonds and increase our market share on equities by around 2 percentage points per year.

Thanks, Alex. The next question is also for you. Have you reversed the first quarter provision date for the government bonds in the second quarter? This comes from Thanh at Maybank.

Yes, very good question, and the answer will be short. No. So Thanh, essentially, you can assume that the benefit of reversing these unrealized losses will be recorded in the upcoming quarters.

Thank you. And -- why don't you take the next question as well. Could you share more details about NPL and provision for both corporate loans and bonds, recoveries in credit costs in the second half of 2022 and 2023, what your expectations are. This comes from Alex at Fiera Capital.

Yes. Thank you, Alex, for this question and your interest in our credit portfolio. So some details -- additional details here. So as I mentioned during the presentation, our NPL improved in Q2 to 0.6%. It was 0.9% for retail customers and 0.3% for corporate customers. Our credit cost on the last 12 months basis was just 0.4%. So overall, we expect these indicators to remain in the same ballpark in the second half of the year. We can see that there is a huge cure of our portfolios under the COVID restructuring program, and there is also active diversification from retail -- from wholesale toward retail. So in short, a stable outlook for both provisions and delinquency. Now as for recoveries, they are very difficult to forecast. That said -- I would say that I would expect the amount of recoveries in the second half of the year to moderate a bit compared to the very significant amount we were able to collect and record in the first half of the year. So I hope this answers your questions. If you have further or want further details, feel free to get back to us.

And the next question is for Jens. In the stress test that the bank runs, how much of the credit balance exposed to real estate sector could turn into bad debts? This comes from [ Joe at Viet Cap ].

So hard to you say, I think from all what we are seeing is that in the stress test, given the fact how we are lending given our kind of LTV ratios, which are pretty conservative and given the fact how the real estate prices actually have developed and which again also helps the LTV. If we look at the -- and the service coverage ratios, how are our customers funding the assets, et cetera. Frankly, we need to find very, very unrealistic and impossible scenarios to stress our book anywhere close to where we would get to the regulatory minimum capital. And -- so again, you know the overall real estate exposure because that's what we are describing. But again, I think the overall quality of the book that we are seeing is actually very, very low. So therefore, again, I'm a little bit trying to and show our way to basically saying what exactly are the outcomes of the stress test. But again, I can actually really assure everyone on the call that whatever scenarios you're running, it will not make any material dent into our profitability or our capital position. And just by the pure fact of how we're financing our book, the average duration, the quality of the lenders on the retail as well as on the institutional side. So there is no major exposure and kind of loss in default. And whenever we are stressing our portfolio on their ICAT pools and either the regulatory scenarios or our own scenarios, which are even more stringent.

Thank you, Jens. Let's take one more question, and this one goes to Alex. Alex, could you share the latest updates about the amended draft for Decree 153. And how this effects the bond-related activities and fees for Techcombank. How did this affect us in the second quarter? And what has been done to prepare for the impact going forward in terms of underwriting volume and the margin of underwriting and then its impact on distribution as well. This comes from [ Lean ] at Endurance and Tang from [indiscernible].

Yes, very good question. And I would agree that this draft, Decree 153 has been an important driver and an important development as well in the latest quarter, explaining a lot of the trend we've seen in the bond market. So what we can see that the latest draft, which has been recently presented to the government for comment, achieves a better balance between the long-term development of the bond market and the short-term impacts. I think it also recognizes the need and the importance of bonds are the way to finance the economy and also as an investment vehicle for market participants. In the short term, we expect that the market will continue to remain soft for both distribution and origination. And this just because we need time for the rules to be finalized and for the issuers and investors to adjust their anticipations. We, however, expect some recovery towards the end of the year and 2023 should be better than 2022, although it remains to be seen whether it will be as strong as 2021. So to put things in perspective between 2019 and 2021, the market grew our origination -- bond origination grew at a rate between 40% and 60% per year. And then in the first month of the year, the market essentially went back to a level, which is more in line or below 2019. So it is a very significant drop. And then when it comes to how it impacted us. So I mentioned during the presentation that our investment banking fees grew actually year-on-year by around 4% year-to-date compared to the same period of last year. So there are 2 reasons for that or 2 conclusions we can draw from this trend. The first one is that Techcombank has suffered comparatively less than other market players from the adverse market sentiment. We estimate that our market share over the period has more than doubled versus 2021 and has reached probably something like 35% over the first 6 months of the year on bond origination. And then the second conclusion I would be tempted to draw is that our investment banking business model is now much more diversified, thanks to the market share gains we have made on our equity trading platform. And as a result of that, we have less and less reliant on bonds in order to drive our investment banking results. But then again, when you look at the bond market with a medium-term perspective, then you look -- you see a lot of potential for this market to continue to grow. It offers investors a potential to grow their wealth with a predictable rate. And my personal assessment is that at around 8%, the average yield on bonds in Vietnam are quite high and attractive when you compare them with a tenure, which is typically less than 3 years. And when you compare it with the underlying credit risk, at least for those bonds that we issue.

Thank you, Alex. This concludes the second quarter 2022 financial results presentation. The presentation and replay link will be posted on the Investor Relations section of the website soon. Please continue to contact the IR team at ir.techcombank.com.vn for any additional questions. We look forward to speaking to you again in 3 months. Good afternoon.