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

Good afternoon, and welcome to Techcombank's Second Quarter and First Half 2023 Financial Results Presentation. As we continue our return to normalcy and stepped up efforts to increase investor access and communications, we're pleased to welcome a number of you joining us today in person in Hanoi, at our new headquarters. As a reminder, please put your mobile devices on silent as we are live broadcasting this event. Jens Lottner, CEO, will begin with opening remarks, and Alex Macaire, CFO, will share more details of the financial results and business update, followed by a Q&A session. Jens and Alex will present in English with live Vietnamese translation available via separate link. 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.

So yes, and thanks everyone on the live stream but also in the room and who took the time to attend the presentation. So what I do is, like in all the sessions before, I just give a summary of the highlights and how we look at the market and the overall context and then Alex will actually go through the details. So if you look into the numbers, they're pretty much in line with the expectations which we have set out for us, but which we also try to communicate over the last couple of sessions. TOI declined on a year-on-year basis and mostly actually driven by the NIM compression, which we've seen and which we explained because cost of funds were actually increasing, but on the other hand, also, we did some kind of flexible pricing, especially on some of our developer engagements, which would mean that this year, and we would actually bring down the interest payments, just in order and to recoup in the years after that, in order to change the cash flows that has implications on the NIM side. At the same point in time, actually, our NFI improving and still resilient, and we're actually up roughly 5%, and that despite the fact that the bond markets are probably not back yet, and also that bancassurance actually has been affected quite a bit. So from that perspective, I think we are showing strong resilience on the revenue side. PBT is down a little bit more and we have pretty good control on the cost side, and despite the fact that we are still doing all the investments in technology, which we have discussed early on, so there is no reduction. But at the same point in time, we're actually already seeing some of the benefits of these investments, especially when it comes to staff productivity, and we will probably explain that a little bit more. But then also provisions were up a little bit, again, in line with the economic cycle. And I think there is no question that this has been a relatively tough first half. But again, I think right now, we are still in line. And again, nothing that cannot be managed. But again, it has some increase in credit cost. Return on assets still stands at 2.6%, which is very high by industry standards. And again, as I said, probably some of that is subdued by the NIM and the fact that we are shifting some of the profit into next year by just adjusting our interest payments. And CASA has seen some kind of a rebound and although the market is actually down since the beginning of the year, and we have been able to grow and especially in this quarter. Again, I'm not quite sure if this is yet clearly kind of a return to normal and reversal. But again, I think we are seeing that we're actually going back to a situation which is closer to what we've seen in the past. So we are up. Will we get -- and I think that some of the questions people ask, will this go on to 40% until the end of the year. There are a lot of uncertainties still in there. But again, I think we are very encouraged by the numbers we've seen. And NPLs, as I said, gone up a little bit, we guided below 1.5%. Some of that is actually organic and some of that is inorganic because of CIC impact. Probably -- around 20% is probably around CIC impact. So if you would take this out, it's actually relatively stable on an organic basis. Most of that is coming from the retail and the SME book, the WB, the Wholesale Bank, actually very, very stable. And at the same point in time, as you see our capital ratios, and we will also go through some of the other ratios, capital liquidity is all very, very strong around industry-leading benchmarks. So with that, as I said, I think it has been a tough first half year. But again, if you look at the numbers, we are very much in terms of what we expected and probably in the Q&A session, we will talk a little bit about the overall industry, but I think we are probably very much in line with some of the industry players. I think on overall this year, maybe the banks might not see such good results like what we've seen in 2022. So with that, I hand it over to Alex to give a little bit more details on where these numbers are coming from and what are some of the key drivers.

Thank you, Jens. So good afternoon, everyone. We'll start, as usual, with an overview of the macroeconomic environment. If we can go to the next slide, Slide 6. Okay. So as you know, Vietnam posted in the first quarter of the year, relatively disappointed year-on-year growth of 3.3%, which was the lowest rating in a long time. The economy was affected by a combination of factors, we had high interest rates and tight liquidity, which constrained the access of many households and corporates to credit. And then in addition to that, we had slow demand from overseas market with exports declining 11% year-on-year. Fortunately, FDI and domestic demand remained strong. Though the authorities took rapid action, we'll come back to that later. And the situation is already stabilizing. So access to credit has been largely restored and GDP growth edged up a bit in the second quarter to 4.1%. However, the confidence remains fragile, as you can see from the PMI index, which is declining again this quarter and is now at 46.1%. So in short, opportunities still exist in many areas of the economy, but there are significant headwinds, and therefore, careful risk selection is required. So if we go now to the following slide, which shows the situation on the monetary side. So as you can see, credit growth remained subdued in the banking sector, only 4.7% at the end of June year-to-date. Banks have ample liquidity. You can see that in the loan-to-deposit ratio, which is on a downward trend. You can see that on the Interbank rates, which have been coming down. And the banks are struggling actually to deploy this liquidity, which leads to a fierce competition on lending rates. And therefore, although term deposit rates have gone down by around 100 basis points year-to-date, the reality that lending rates have probably gone down even more, which is obviously putting pressure on the net interest margin. And looking ahead, we see the potential for a further reduction in interest rates, albeit at a lower pace than in the first half. And importantly, we expect credit growth to remain slower than in previous years, and probably the growth of credit overall in the economy might be around 10%, maybe a little bit more for the full year. On that basis, we believe that the competition on lending rates will remain intense and therefore, the pressure on the net interest margin will remain for most of 2023. Okay. Looking now at financial highlights. So our financial performance has been quite steady, Jens mentioned it, particularly in light of the headwinds we are facing. Our TOI and PBT stayed broadly stable in the second half -- in the second quarter of the year, and we have already delivered a little bit more than 50% of our full year target, as communicated to the AGM. As previously guided, our net interest margin remained under pressure, so we mentioned it last quarter, and it happened. The reasons are the aggressive competition on lending rates, as I mentioned, but also the flexible pricing policy we are applying, in order to support our customers. I explained, we believe the second half of the year to present a similar pattern. Therefore, we will still have to wait a little bit more before we see the net interest margin improving again. We are essentially midway through a period of adjustment, where a number of real estate projects have seen their commercialization timeline extended. These projects are again very good projects. They are all very good projects, and once they are completed, even if it takes a little bit longer than initially assumed, there will be a significant revenue catch-up for the bank, because we will be able to recoup the interest rate concessions that we have granted in the past. And therefore, it is essentially a question of time, before we see the net interest margin of the bank picking up again. However, I think what is important is that, even with all the current headwinds in the economy, particularly those impacting the core businesses of Techcombank, we are still among the best performing banks in Vietnam from the point of view of ROA, net interest margin, capital adequacy ratio, nonperforming loans and even ROE, if you take into account the size of our capital buffers. So this slide provides an overview of our PBT. We will look at all the drivers in more details later. I will therefore only highlight a few key points. First, the resilient performance on our NFI, despite severe headwinds in our banca business, as Jens mentioned. Then the second thing, the positive contribution from other income, driven by trading gains, driven by lower swap costs and also the gain made in Q1 on the sale of our legacy headquarter in Hanoi. Our recoveries were down 63% year-on-year, essentially in the same period of last year, we had 2 large receivables, and that explains the decrease year-on-year. Finally, we managed our OpEx very tightly, with the support of the efficiencies enabled by our digital investments. Our OpEx went down by minus 3% year-on-year and 10% quarter-on-quarter. So this slide shows the component of NII in a bit more detail. As you can see, asset yields have started to decrease a bit. So beyond the reasons I mentioned earlier, another contributing factor with the yield on government bonds and also interbank rates. So these 2 categories of assets represent around 17% of our total assets and their yields have gone down, as you could see in the previous slide, by 200 to 400 basis points, since the beginning of the year. So when we think of the interest on earning assets, we need to take into account also that are significant component of government bonds and interbank loans. In terms of volume interest earning assets edged up only slightly, and I want to also explain very clearly why is that. Essentially, it's not that we didn't have the opportunity to grow our assets more, it's just simply that we were not allowed to do so, because we had already mobilized at the end of the first quarter, most of the credit quota we had been guaranteed by the State Bank of Vietnam. Our funding position remained very solid, with a year-on-year increase of 19% in customer deposits, which is quite strong. Our cost of funds inched up only marginally, 0.1% and it is on a downward trend, since the peak in March. And therefore, you would see a more tangible decrease from next quarter. Overall, our NIM now at 4.3% on the last 12-month basis. As I mentioned, we expect the NIM to remain under pressure as well, with more most of 2023, before hopefully bottoming out. We will now look at lending balances in more details. I will not repeat the comments made earlier on credit yields. We expect the trend to continue in the coming quarters. The number of banks are essentially struggling to utilize a credit quota leading to aggressive competition on pricing. Looking now at the structure of our credit assets. So we saw strong demand clearly from our corporate customers, particularly during the first quarter, and this demand was accompanied with pricing and risk characteristics, which were aligned to our underwriting criteria. This explains why credit assets from corporate customers increased so rapidly in the first quarter. In the second quarter, we saw a pickup in demand from SME customers, while the demand from retail customers remained largely subdued due to the situation in the real estate market. During the second half of the year, we will look to channel more of our capital and credit quota resources toward the retail and SME segments. However, I think it's important, we will not refrain from writing more corporate customer assets, if we see attractive opportunities in that space. This is another slide on our credit exposures. I already talked about the growth of our ReCoM portfolio last quarter. In a nutshell and reinstating this point, we still want to diversify our credit books, but we also recognize that we have less latitude to do so, in an environment like this one. So more generally, if you look at the wider banking sector that -- ReCoM remained the sector with the highest credit growth in the first half of the year. And therefore, the trend you can see in our books is largely aligned with the overall market. During the second quarter, we could put more emphasis on diversification, and this is why you can see a more meaningful growth in utility and also in the other category with growth between 22% and 29% quarter-on-quarter. Moving on to retail loans. The situation in the retail real estate market has continued to impact on the volume of mortgages we were able to write, which has led to a reduction in balances due to early redemptions. However, the situation is clearly improving, and what we've seen is that, the volume of new disbursements for mortgages in the second quarter was around 60% higher than in the first quarter. You cannot see this on the chart, because of the volume of prepayments, but this is providing relatively good insights into what could happen in the second half of the year. So we continue to believe that we have the potential to overperform the market on mortgages, due to our partnership with premium projects with clear legal status. Finally, unsecured lending has seen again some healthy growth this quarter. We are looking to continue to grow this component of our books, which offers high margins and attractive returns. Now a quick focus on deposits; we did not have to grow our deposits this quarter, because our credit books will be stable. So therefore, rather than increasing volumes, we have preferred to focus on the mix. We grew our CASA balances, Jens mentioned it, by 8% quarter-on-quarter, putting an end to 4 quarters of consecutive decline. The decrease in interest rates clearly provided some support, but it was not the only reason. We also saw some very strong inflows into our new proposition, Inspire, for emerging [ FUM ], and we also benefited from very aggressive new-to-bank acquisition. During the first half of the year, we acquired 1.4 million new customers, which is more than across the whole of 2022. The average deposit rate is also showing an inflection this quarter, with a much lower growth. You may be wondering why the decrease hasn't been more pronounced. It is due to the fact that customers have changed their investment pattern, and tend to now favor longer tenured deposits, which typically attract a higher rate. We therefore expect that the reduction in term deposit rates and cost of funds will be more visible from the next quarter. Let's look now at our fee income. I would summarize it as a lot of positive trends and one major headwind. So cards was up 53% year-on-year, thanks to revamped propositions, driving purchase volume. Letters of credit, cash and settlement was up 147% year-on-year. This is very impressive growth, and it was achieved through a wide range of tailored digital propositions, including for trade -- advanced solutions for trade business, cash management and a leading banking app for SME customers. FX fees was up 25.4% year-on-year and even 155% for FX derivatives. This is another area where the bank has significantly invested and stepped up its proposition with a dedicated sales force and tailored advanced FX solutions for -- to serve the need of our customers. Although it's still down year-on-year, IB fees showed an encouraging trend, up 11% quarter-on-quarter. Bond issuance increased 96% in the second quarter compared to the first quarter. And bond distribution volume increased by 63% again quarter-on-quarter. The one main area showing the deterioration this quarter is banca, with a 53% quarter-on-quarter decline. So as much as we anticipated that things would be tough for real estate, things will be tough on bonds, we didn't see this crisis of confidence in the bancassurance market coming. We didn't anticipate it. And it's very difficult, clearly, to overcome these headwinds. And our approach so far has been to continue to stick to our focus on sales quality. So we have a new CRM too. We have a dedicated training for RM. We have a dedicated app for [ need ] analysis and a new inbound call center also, which allows us to address specific queries from our customers. So like most of our strategic bets, this bet on banca is a long game, but we are confident that it will pay off. Turning now to operating costs; our OpEx during the first half of the year declined by 3% compared to the same period of last year. Staff costs were managed very tightly and reduced by 5% year-on-year. Our investment in digital allows us to be a lot more efficient, and as a matter of fact, our total head count has already been shrink by 5% since the beginning of the year. We have also been very selective in our marketing expenses, particularly as the environment is less supportive in a number of our businesses. So a lot of our marketing spend in -- at the moment, is channeled toward a new-to-bank customer acquisition. We have also continued to invest in digital data technologies, which drive premises and equipment up 47% year-on-year and depreciation and amortization up 74% year-on-year. Overall, our cost-to-income ratio stood at 32.3% for the first half of the year, which is a quite healthy level. A quick focus now on asset quality metrics. Credit costs edged up only marginally to 0.6% and NPL increased to 1.07%. Those levels are in line with our expectations. They are consistent with the maturation of our credit books, and they are also in line with the current position in the economic cycle. Most of the increase in NPL came from the retail book and included impact from the growth in our unsecured lending, but also credit bureau-related loan reclassification for customers who are still current in our books. The NPL of our wholesale banking books, as you can see, was again this quarter, exactly 0.0%. Finally, our coverage ratio was 116%, which gives us a significant buffer in the unlikely event of a deterioration in the quality of our credit assets. Overall, it is, I believe, a very strong set of asset quality metrics. Like in the previous quarter, I'm also providing some additional insights into the health of our credit books. As we can see, the trend is favorable or stable across most metrics. LTV improved quarter-on-quarter and is comfortably below 60% on average. The percentage of receivables of our total assets is stable and the credit structure of our portfolio by CR8 is also stable or improving. Turning now to capital and liquidity. Our capital adequacy ratio is up slightly to 15.1% as a result of our organic profit generation and liquidity, the structure of our funding remained broadly unchanged and our regulatory ratios improved a bit over the previous quarter. This gives us a solid base to continue to grow our assets in the second half of the year. Finally, a glimpse into our performance versus peers. So it's fair to say that we have had our share of disruptions in the bond and real estate markets, and which has been particularly penalizing for Techcombank, given the characteristics of our business model. And in this context, it is not entirely surprising to see some degree of convergence between our performance and that of our peers. We'll have to wait and see how things develop. Clearly, we are measuring the performance of Techcombank at the time of the cycle, which is particularly penalizing for us. What I can already notice is that our bank tends to have controlled the overall proportion of troubled assets better than the other banks, particularly during the first quarter of the year. Overall, we will aim to continue to favor and optimize trade-off between risk and return, which has been the trademark strength of our bank. Moving on now to forward-looking guidance. So for GDP, the economy is clearly slowing down, and we are expecting the growth for the full year therefore, to be probably at the lower end of the range we previously communicated. The main impact for us will be in terms of lower credit growth in the overall economic sector -- in the overall banking sector, sorry. And the result of that, as I said, we expect the competition on lending rates to still remain very intense. However, there is a possibility of a pickup in the second half of the year. So we are seeing already that SBV is injecting liquidity, is driving interest rates down, we'll be able to do so because the value of the Dong remains also robust. Fiscal spending should increase. There have already been some significant tax cuts, including on VAT, and then in the second half of the year, the government will look to disburse more on public investments. And finally, there are also signs that the investors are coming back -- becoming pro-risk again and going back into bond and stock markets. With that, let's look at our updated guidance for 2023 -- so credit growth will be in line -- with the quota we will receive from the State Bank of Vietnam. And currently, we have been given a quota of 14.1% since the first week of July. Cost of funds should start coming down from the next quarter. However, the NIM that I explained should remain under pressure until the end of the year. On average across the full year, it will be a similar profile to where it is now -- now it is at 4.3%, and for the full year, it should be between 4% and 4.5% and potentially at the lower end of this range. The NII decline should be in the high single digit, while we are also revising our fee income guidance down, given the unexpected headwinds in the banca market. So NFI growth now we believe should be in the high single digit. And overall, I want to be very clear about that, we do not change our overall PBT target of VND 22 trillion for the full year. On CASA ratio, we will try to get back to the level reached at the end of 2022, and hopefully, we will even try to go a bit higher. For cost-to-income ratio, we will keep -- continue to manage it in the mid-30 level, which is our long-term guidance. We expect NPL to be in the same ballpark where it is now at 1.1%, recognizing that there are some uncontrollable factors as well, like the impact of the credit bureau. And finally, as we complete the COVID restructuring program, and we will no longer benefit from the possibility to reverse the COVID provisions, we expect credit costs to normalize and get closer to its long-term level, whilst remaining under 1%. Overall, I think Jens mentioned it, we are quite pleased with the performance of the bank so far. Asset quality remains strong. We are on track for our full year PBT target despite all the headwinds we are facing, including the ones we did not anticipate like banca. We believe that this creates a very strong base for a sharp rebound of the bank's performance, once the headwinds in the bond and real estate markets dissipate. This concludes our presentation. Thank you for having listened to us, we will immediately continue with the Q&A session.

Thanks, Alex. As we have a live audience this quarter, we'll skip the break and move directly into the Q&A session. The first question will be for Jens. Jens, Alex mentioned in the presentation that GDP growth this year might be lower than the official forecast, perhaps only 4.5%. What's your take on it and what would it take for us to actually end up over 5%, maybe 5.5%?

So thanks for the question. So let's start analyzing where we came out because -- where we ended up in terms of -- in the first half. So first half is roughly -- if you take together 3.7%, and that's the second lowest or the last 12 years, when it comes to first half growth. Mostly, it was driven by a lot of sectors. So clearly, an import and exports overall were actually down, and Vietnam as a manufacturing hub of the world, it's very clearly, if the rest of the world goes into recession like territory, it has an impact on us, especially imports were down more than exports and given the fact that imports are kind of just -- kind of free material for exports, and it just basically says that -- and we see probably a further slowdown and going further -- or at least not a pickup. PMI was down. I think right now, it stands roughly at 46%, 48% and 48%, which is a one-off on the fourth -- or it's the fourth consecutive month where it's actually on a downward trend. So -- and at the same point in time, real estate sector is still a little bit down and tourism has not really come back. So I think there's a lot of reasons why we are at 3.7%. So the question is, are you expecting that to turn around, or what are the levers we have under control? So export-import really depends very much on the rest of the world, and I think we don't see right now a massive shift in the major economies. So from that perspective, probably we cannot rely too much on that. And I think what we can rely on is domestic consumption. So domestic consumption was actually still okay and holding at 8.4% in the first half, so I think that is there. I think we still have a lot of public investments which are unable to be disbursed, and as we said, only 30% have been dispersed in the first half, and so I think the overall number which the Prime Minister mentioned was around VND 700 trillion. And so if that really hits the market, I think that -- and of course, would be very, very helpful. And then again, I think tourism can be coming back and I think we're seeing some of the changes in visa policies, probably having some impact. So we will see domestic consumption, public investment, maybe some service related. And then I think we have a really big question mark still hanging on the real estate sector, right? And so if the real estate sector is coming back, then I think that can give some extra impetus. I think that will rely less on demand because, to a certain extent, the interest rates are already down and I think what we are seeing in our book, is actually that mortgages and mortgage demand is actually coming back. So right now, we are already -- probably at pre-pandemic level in June. And if I compare June disbursements to what we had on average in the months before and in, let's say, March, April, it's probably double. So I think we're getting at interest rate levels where demand is picking up. But the question is, do we have enough good, clear legal projects, where people can actually buy. If that is not resolved and then I think that might be difficult. But again, I think there's also lot of effort right now to actually clear land rights and all of this. So things getting into the market, which actually should help. So I think the monetary side has been done, but I think there are some fiscal elements which probably still need to play out. Now if you want to go to, let's say, a 6.5%, which is the official target, and you are at 3.7% for the first half, I think that becomes very, very hard to believe, right? So -- and I think we probably should be thinking about something which sticks around the 4% to the 6%, so 5.5%, I think, would already be a pretty good sign. And for that, as I said, public investment, domestic investment needs to -- and public investment needs to come in, domestic consumption needs to hold up. And then some additional input real estate, as well as tourism, some of the service sectors, that should hopefully get us to the 5.5%. I think there's enough liquidity in the market and there's enough willingness of banks also to lend, but we really need to see the -- ultimately export and imports also come up again, and I think that still probably needs to be seen, and is pretty much out of the control of Vietnam, and we are really dependent on the rest of the world.

Thanks, Jens. Sticking a little bit from -- on the macro a little bit is -- and I'll combine the next 2 questions, since they're quite similar. What's your view on the current situation of the banking sector? Do you believe that NPLs have peaked? And if not, where do you think they'll go in the back half of the year?

Okay. That's a good question. And it's always hard to comment on the overall industry, because I mean, I don't know exactly what all -- our colleagues are doing in the other banks. I think my perspective would be, in terms of the support of the SBV, if we think about liquidity, easing of liquidity, et cetera, I think a lot has been done, right? I think we saw clearly interventions to start stabilizing the interest rates, bringing actually interest rate down, and giving relatively cheaper loans to the businesses, and also making sure that the funding costs are going down. So again, I think a lot of support has been given. However, the question still is, are there enough interesting projects on -- in the real sector, right? If you don't see that and you can invest because from a manufacturing capacity, nobody is buying your products, even if it's very, very cheap, you can still not land. And I think that's why you're seeing that credit growth is still very muted. And so year-on-year -- not year-on-year, but year-to-date, it's 4.7%, and deposits are 4.4%. If we want to go to a kind of 13%, 14% target, I think really it comes down how many interesting projects are there. And they got a lot of the projects in the past we consumed, where real estate and manufacturing expansion, and that probably is still a little bit lingering. So therefore, I don't think we will see the kind of growth in terms of the balance sheets and the banking sector overall. I still think that there will be some pressure on NIM. And as kind of good projects will be limited and therefore -- and there will be competition from the banking industry. Fee-based business, if I look into the bond market, if we look into bancassurance, I think everyone is affected. So overall, bancassurance is down 40% in first half and for the market. So I think to that extent, probably kind of revenue growth will be somewhat restricted. And then I think, as you said, the big questions are around NPLs, have NPLs peaked. I don't think so yet and I think there is probably still a little bit more to come. But again, it will not be kind of exponentially growing or something like that. But I think it will be a creeping up, as customers will see it harder and harder, they mobilized all the resources. But if the rest of the economy is not coming together at one point in time, they would just say enough is enough. And I think that, that slow kind of increasing pressure might still, over the next 1 or 2 quarters still need some additional NPLs. Will we see it given the fact that there is some leniency granted by the SBV on the way how you restructure and how you account for the credit costs? You might not see it spiking. But again, I think credit costs might be running a little bit behind the NPL numbers. So again, I don't see anything major. But if you ask me, is the stress out of the system, I don't think so yet. And still real estate-related areas and service-related areas, tourism related areas, and we still need to see how these measures, which have now been taken by the government, how they're working its way through. But again, I think all within a manageable range. And as I said, we guided roughly where we think we will be. And I think probably that will be the same for other banks as well. Overall profitability, as I said, I think we probably when some of the announcements were made at the beginning of the year where profit targets and all of that, we were already a little bit more prudent. I think we might be -- or we will be ending up on that level. If things are going well, maybe a little bit higher. I think others might maybe take down a little bit of their forecast and might be a little bit more prudent, just because the headwinds are not subsiding completely in the second half.

Just following up on NPLs, specifically for Techcombank, the NPL percentage was up a little bit, but the portion for [ RVD or ] retail was mostly increased. What was the reason for that? And was it mortgage or other products?

Yes. So again, I think Alex mentioned it, actually, the wholesale banking book has performed very well, cannot be getting much better than 0. I think SME is where we're seeing a little bit of trouble. Some of that are in construction and related small players. But I think a lot of the increase, if I go through the organic increase was actually around mortgage, and it was around credit card. And credit card is, to a certain extent, in line with what we expected. We talked about it, and said we actually want to diversify the book. We want to go into these kind of high-yielding assets. And you see, on the one hand, that actually credit card is doing very well across not just interest income, but also fee income. And so purchasing volumes up by 60%, installment volumes are up by 50%. So it comes with certain increases in NPLs. There are some accounting issues and all of that, but I think overall, and credit card was a big contributor. Again, if I look into the overall economic return, it still actually makes a lot of sense. But again, as we start building the book and you see an overproportional number as it goes up. The mortgage is just -- and people had refinanced or people thought about actually taking the assets, maybe selling it or refinancing at a much lower interest rate, suddenly than when they came out of the moratorium, they needed to refinance at a much higher rate. So they are struggling to bring that together. So I think that's why it increased. Now as interest rates are coming down and what we're seeing right now, as I said, I think we're getting much closer to pre-pandemic level. I think we will see that and people are also catching up again and that people will become current. But again, the classification is very strict in Vietnam. So again, I think while it's up, and we expect, again, not that will increase so much more and also that some of that will actually find its way back into performing again. So yes, mostly retail and credit card, which is more structural and in line with what we expected and then you have the economic overlay on the mortgage book. But as I said, I believe that will actually start normalizing and coming down again. As Alex said, our credit cost is pretty much in line with our long-term pre-pandemic level. And so therefore -- and it's very much in tune with our strategic plans and what we had in mind. And so in terms of the guidance, we still remain very much -- like credit cost remains under control, NPL might be probably somewhere at this level, 20% probably driven by inorganic stuff, which is not within our control. But again, all very well within -- and all planning parameters.

The next question is for Alex. Alex, could you give an assessment of the bond market and the -- the current bond market and the impacts on the banking sector, the real estate sector in general, and then Techcombank in particular. Specifically, you've noted in the past that bonds underwritten by Techcombank and TCBS are current. So what is Techcombank's involvement in the Ho Chi Minh City project owned by Bitexco, that had to ask bondholder for an extension of payment dates.

Thank you for this opportunity to come back to the bond market. So as we mentioned, right, the government has taken a wide range of measures to stabilize this market. So the most stringent holes, for example, on professional investors on rating requirements, on bond buyback restrictions, all these rules have been pushed back, and the new negotiation mechanisms have been created for issuers. So what we can see, is that these measures have proven effective so far. At one point, there were fears in the market that the amount of bonds defaulting could reach VND 100 trillion or even more. And nothing of that has happened, right? There's been a relatively limited defaults so far, and markets have been quite calm. So when it comes to the impact on the bank, so you've seen it in our numbers, right? So our investment banking fees were down 66% year-on-year. However, as I mentioned, the second quarter was better than the first one. So we had an increase in our investment banking fees by 11%. There was also some encouraging trend on issuance volumes, up 96% quarter-on-quarter and also on distribution volumes, up 63%. So I think compared to precrisis levels, our investment banking fees, still offer a lot of room for improvements. But I would say the trend is encouraging. Now coming to your second question regarding the bonds issued by Bitexco Saigon Glory. So actually, the role of Techcombank, and more precisely, our subsidiary, TCBS is that of a securities agent. So it is in charge of managing the collateral. So the underlying asset is a very, very good project located in Ho Chi Minh, in a super prime location, with uniquely appealing features. Therefore, we are hopeful that a solution will be found in the interest of all interested parties, including obviously, bondholders.

Next question is for Jens, and we have a couple of questions on regulatory changes. Jens, what is the business impact to Techcombank as a result of Circular 6 2023, that amended Circular 39 from 2016?

Okay. So Circular 6, without going into the details, are basically saying they are for additional ineligible cases, where you cannot use loan borrowing. Frankly, we have not been engaged in that kind of business anyway. And so the impact on that for us is actually very, very limited. There's however, an element which also is on Circular 6, where basically, I'm talking about mortgage refinancing, which now becomes kind of legal. And on that one, I think, actually, that's quite an interesting opportunity, because we believe that our ability and our investments we made in the past in terms of risk-based pricing capabilities, would allow us to actually be very surgical in terms of what really is the right interest rate we should be charging a customer, and that by having superior insights into credit risk and understanding really capacity of people to borrow and -- but also of the collateral, et cetera, and should actually give us an opportunity to maybe be a little bit more aggressive on the secondary mortgage, whereas right now, we are mostly acting on primary mortgage. So again, we're studying that very carefully. But overall, I think Circular is 6 rather beneficiary to us than anything else.

And following up on that, maybe I'll ask Alex to take this one. What is the impact of Circular 2 that allows certain restructuring of loans as it relates to your financial statements in the second quarter and then also in the second half?

Yes. Thank you for the question. So Circular 2, as you said, it's about allowing banks to restructure under certain conditions, customer assets without changing the classification of the assets in the external disclosure. So, so far, what we have seen, is that the demand for this program has been quite limited, which is a good sign, by the way, right? So we currently have around VND 400 billion of assets in this program, and we expect that the overall volume for the full year will be somewhere between VND 1 trillion and VND 1.5 trillion. So relatively limited impact.

Thanks, Alex. So along those lines, could you comment on asset quality as well?

Yes. So asset quality, I think Jens mentioned already, and I made a very elaborate answer around NPL. So our NPL went up from 0.9% to 1.1% in the second quarter. And we have a healthy loan-loss coverage ratio of 116%. Most of the increase came from the retail book. It was linked to maturation, normal maturation of our assets in the unsecured lending portfolio, where we -- you would expect typically to have a higher proportion of NPL in exchange for a much higher margin, by the way. It [indiscernible] from some pressure in our mortgage portfolio, due to essentially the amount of interest being higher and therefore, customers having to pay a slightly higher amount to the bank every month. Some of them are struggling, and also some of them having lower liquidity opportunities, as the market is slowing down. So that's -- that was a second driver. And the third driver was, as I mentioned, the impact of the credit bureau, right, or the fact that some customers might be current in our books, but might be having some delinquency with other banks. So those were the main components of the increase in nonperforming loan. However, again, for me, this level of nonperforming loans is completely in line with our expectations, given the position in the cycle and given also the characteristics of our asset mix and the growth of our unsecured lending exposures. Going into the second half of the year, clearly, there are some improvement in the -- some of the leading indicators, right? So like GDP, as we said, should accelerate a bit. There will be a higher credit quota available to economic factors. Interest rates should come down. We will have also restructuring options like Circular 02, which we discussed 1 minute ago. So all this will be supportive of an improvement in the overall credit health. However, at the same time, there is always a delay, as Jens mentioned, between an external factor like the shock we had at the end of last year, and then it makes -- always takes a bit of time for this to translate into the emergence of higher risk in credit books. So that's why, all in all, we expect that the second half of the year will be comparable to what we are seeing now in terms of cost of risk and nonperforming loan ratio.

Going back to Jens, you mentioned that the latest credit quota is 14.1% for 2023. Given that the -- there's weak credit growth in the whole system and what we've heard is that other banks are struggling to use up their quota, do you think that the State Bank will end up giving Techcombank a higher quota? And what is your risk appetite if that were to happen? And what would you see the mix of this -- if there was an increase in quota, how would you see the mix for the full year, given that we saw that you had a higher mix of corporate growth in the first half?

So long question with a lot of subcomponents. So first one, and let me start the first thing is, our risk appetite is probably not dependent on the credit quota. And our risk appetite is our risk appetite, and then we see what we can do within that. I think the current quota is roughly 14.1%. And if we talk about the guidance given for the sector, we right now would be on the sector level. But again, as we also described, we are probably right now double in terms of our lending compared to the rest of the industry. So I don't know where SBV will be coming out, and if we start exhausting these 14.1% relatively quickly, and if they will be granting more, again, given the fact that, of course, there is also close monitoring on the banks and assume that we would actually disburse in the right projects and with the right risk management approaches and all of that, and we will see if SBV would then say, let's give even more quota in order to help the economy. But again, I think that's really a decision left to the SBB. I think right now, what we are seeing is we are -- at this point in time, roughly at the level where we were last year. So where will it be disbursed? And ultimately, nothing has changed in terms of what we said before, and we want to diversify the book. But we also look very clearly in terms of what is currently possible and what makes sense. So as I said, I believe that there are good opportunities in the SME space, and I think there are good existing customers, especially when it comes to -- kind of working capital and all of that, where I think we can do more. And again, we will mostly focus on existing customers and actually start seeing -- and if we can help there, and as they start building up inventory as we go, especially also into the peak seasons, Christmas, Tet and all of that, as they start building up inventory. We will see on the retail side, how that's developing. As I said, mortgages are actually coming back. And so June clearly was a clear increase compared to what we saw in the months before. And so if that continues to be the case and clearly, there will be disbursements into the real estate sector on the retail side. On the corporate side, we need to look at where we are. I mean, we are looking into diversifying FMCG, utility and all of this. And we clearly actually have expanded that part of our book. But again, given the fact how big our real estate exposure is, it's sometimes a little bit hard to see on how that is making a dent. And then lastly, I think there are still interesting real estate projects. Again, and I think we're coming back to the same endpoint we always made. We believe there is a chronic undersupply of good real estate projects in the market, as long as these projects are well -- kind of well thought through. If they hit market demands, if the land rights are clear, if they are secured accordingly, we think actually this is a good way to deploy capital. So again, our priorities are clearly SME and retail, as long as we are making sure we are still maintaining our standards. So it will be mostly probably to existing customers, primary mortgage and maybe very selectively, secondary mortgage. Then if we find other opportunities in utilities, FMCG, that's where still a lot of demand is, as I said, and domestic consumption is still holding up. And then real estate, again, I think we will continue to finance those projects which we're currently seeing, so that they can actually start continuing progress on the building, so that we can have projects ready for sale, if and when the markets are coming back. And then potentially new projects, but probably the new projects would be rather very, very few just because -- and again, right now, having really good projects with the secured land rights, et cetera, is also not so easy to come by. So we see -- but again, at this point in time, 14.1% I think given the demand we are seeing, we should actually be able to also exhaust that quota in the foreseeable future.

Thanks. Turning to CASA. It was nice to see an upward inflection point in terms of CASA growth. How sustainable do you think the 35% is? And do you -- and then could you actually expect it to go back to 40% by the end of the year?

So I think on the CASA side, things happened as we expected, right? So the moment the interest rates are coming down, you see that while our overall deposits didn't grow, we saw actually a shift from CASA into -- from term deposits into CASA. And again, 2 main elements for that. One is you're kind of not optimizing so closely anymore, because the rate differential between the 3 months deposit and the CASA is not as grave as it used to be, right? And right now, if you look at ECB, maybe they're paying 4% compared to at the peak, where for some of that, it was around 9% or 10% that makes a huge difference. So from that perspective, I think we're seeing just people not being so tight on optimizing. At the same point in time, they're also using the money as a parking device in order to go into other asset classes. As I said, mortgage is going up. We see bonds -- at least also secondary market is going up again, we're seeing the stock market and basically coming back. And again, some of that is kind of liquidity parked in order to find its way into other investment and asset classes. So from that perspective, again, I think we're seeing that trend coming or this trend reversal happening. Will this go to 40%? I think a lot of this will depend very much on first, how are interest rates continuing to develop, how interesting are other asset classes. And then lastly, of course, how good are our offerings and when it comes to transaction banking and compared to our competitors. And that is where we said in the past, we invested a lot in 2 new propositions on the wealth management side, but also merchant and collections, normal transaction banking. We just launched a new loyalty program, et cetera. So a lot of our investments in digitization are actually geared towards becoming the main transaction bank, really making and creating very rewarding transaction banking relationships. So if that all works through, and then, yes, we probably could see the 40%. But as I said, some of these swings happened against us, and a little bit unexpected in the past. So let's say, the movements were very, very quick. To be fair, also, when the money came back, it also came back very, very quick. So it's a little bit hard to predict ultimately where we are, but I think the good the good news, at least for us is, I think we're seeing probably a bottoming out, and from here, we start rebuilding. But it's a little bit hard to see, are we going back to every quarter, 3% quarter-over-quarter in terms of CASA ratio that's a little bit difficult. I think the other one also we should take into consideration, is given the fact that we now have the new credit quota, which again is an additional 5% on our book is roughly VND 20 trillion, if we want to mobilize that pretty quickly, and we need to find the funding, it might be harder to build that funding out of CASA. But potentially, you need actually to fund it differently through term deposits. So if that would actually happen even if our number on the CASA side is not going down, we might actually accumulate new funding through term deposits before we can switch from term deposits back into CASA. So -- and overall CASA might go up, but the ratio might still actually be under pressure because we ramp up term deposits even faster. So these are all aspects. But again, I think, overall, what we said is after 4 consecutive quarters where things were coming down, not going up and in terms of our absolute CASA, I think that will probably continue and going forward. But how exactly the ratio will develop, that probably still remains to be seen.

Turning to cost of funds and NIM. Next question is for Alex. Could you explain something that on the surface might be a little bit confusing. Cost of funds increased quarter-over-quarter when interest rates actually declined since early April?

Very fair question. And I must admit that I find it a bit counterintuitive too at first glance. So the short answer, it has to do with the averaging effect. So actually, the cost of funds increased in the first quarter and then decreased in the second quarter. However, when you calculate the average during the first quarter and the average during the second quarter, then they were more or less at the same level. Actually, the average of the second quarter was slightly higher than the average of the first quarter. But then going forward, it will go down more visibly. And so therefore, I hope that this slightly counterintuitive finding will not remain in the next quarter. We should also bear in mind that, as I mentioned, the investment pattern of our customers is changing. So they are seeing that the interest rates are going down. They are actually trying to front run that and therefore, invest longer term. So the bank has to essentially raise a longer-term deposit, which also have a higher cost. So that somehow offset some of the decrease in interest rates. And then beyond that, we should also have in mind, that not all the components in our funding base have the same dynamics. For example, we have around USD 2 billion -- of debt in U.S. dollar, on which the interest rates have kept rising during the first half of the year. This was offset by gains made on the interest rate hedges. However, these gains were on other lines in the P&L. So if you look just at the cost of funds and net interest income that one you see, is an increase in the cost of our overseas debt. So long story short. It's not as simple as mechanical communication or transmission from interest rate to cost of funds. But from the next quarter, you should see a more visible impact from the reduction in our interest rates.

And -- going on to NIM. NIM has been lower than recent quarters. So could you comment on your NIM expectations for the second half? And specifically, you mentioned a flexible pricing policy, where you're only booking the cash interest received. When would you benefit from the other side of this flexible pricing? Would it be in 2024? And then would you -- at that time, would you expect NIM to go back above the 5% level? I know it's kind of long, but the follow-up to that would be, what is the normalized NIM in your opinion without this flexible pricing effect?

So quite a long question with many aspects. So starting with the first -- the current position on the net interest margin. So as I explained, it has more to do with the -- actually the average yield on interest earning assets on the cost of funds. So the cost of funds is on a downward trend, but the yield on the interest-earning assets is decreasing even faster, right? And these across government bonds across interbank loans and also across, obviously, customer loans. So that's the main reason why we are seeing pressure on our net interest margin. Now on the question -- second question, which was the impact of the flexible pricing policy. So as we explained, right, the understanding with our customers is that we are granting them concession in interest rates, on the understanding that once on the cash flows of their projects improves, then there will be a catch-up on interest rates. So therefore, when situation improves, you will have 2 effects, right? So instead of having concessionary interest rates, you will have the normal interest rate, which will be a first positive impact. And then also, you will have a catch-up on the concessions made in the past. Therefore, you will have a second positive impact. That's why, as I said, while we are relatively comfortable that you will see a significant rebound in the net interest margin, which might not necessarily be sustainable, because there will be this catch-up effect, but which will be very significant, okay. And then to your question around what will the NIM look like in 2024 without this impact? I think it's difficult, right, to project what the net-interest margin will be in 2024. What I can say, however, that I do not see this rebound and for this catch-up effect happening this year, okay? That's why, again, I repeat, the net interest margin this year should be in the 4% to 4.5% range, and probably at the lower end of this range. So that's point #1. Then point #2, to give you an indication of what to expect in a normal environment without these interest rate concessions. Then if there had been a flexible pricing policy on the part of the bank and everything else that [ he called ], and our net interest margin this year, we probably have been closer to 5%.

Okay. Switching gears to bancassurance. This question is for Jens. There's been a lot of negative press on the banca industry. So this is -- there are 3 parts of this. What impact does this have on Techcombank and its practices, and how do you differentiate yourself and the rest of the industry is the first part? Typically, the -- you have a very strong second half in terms of banca fees and bonuses. So the year-to-date performance, what impact would that have? And then finally, could you just comment on the draft regulations on the insurance business and its impact might be on your banca business.

Sure. And as again, [ one could imagine ] probably that is one of the key areas we are discussing, where we really try to understand how that will probably play out. So the first one is, I think the way how we conduct our business, some or most of the issues which we're currently seeing, where people are going into mis-selling and all of this, actually should not happen in our system. And the reason why I'm saying that is, we are controlling very much the end-to-end process from which customers are we speaking to, what products are we recommending, et cetera. So we're not having a referral model, where we're just saying, we believe that's actually somebody we should be talking to, and then we hand it over to a representative of the insurance company. Where we're actually really doing everything we just get the products and deliver it from our insurance partner. So from that perspective, we have processes on the -- in our CRM models, but also even a need-based advisory tools where we're really going and saying, okay, please explain why do you think you need actually an insurance product? What is it good for? What do you want to cover, et cetera, et cetera, so that even when there was a lot of noise, I think the amount of customers which were coming to us complaining and saying, you mis-sold or something like that, were very, very, very limited. And again, I think that probably is right now the issue we are mostly facing. And as an industry, I think the industry right now is just a question of confidence where also a lot of products have been sold, not from a protection perspective, but from an investment perspective, and it's very clear that life insurance, and if you put this anywhere close to a saving product or a fund or something like that and you expect certain returns or we promise certain returns, there's no way that you can actually hold that through. And I think that's right now where people are saying, why do I need it? What is it good for? I still believe that as a country in the development we are in, we need actually more insurance products, and I think a lot of people need more insurance products as real protection products. Also when it comes to long-term capital formation and given the fact that people are getting older, and we don't have a really well-established kind of pension system, retirement system, et cetera. So there's a lot of reasons why we actually need these products, but they need to be sold with the right intent, to the right customer and with the right responsibility. So that we are focusing mostly all our work on training our customers and all of that. So anything which helps any regulation, which gets us closer to that, we actually welcome. So in that respect, the law of insurance, which is currently in the draft, and I think we think that's good, because it actually starts going against these behaviors, which create these crisis of confidence. Now there are very specific regulations in it, which come also about how much commission can you pay, et cetera. which, again, is supposed to help making sure that you're not incentivizing certain products, so people are just pushing it because they get a lot of money, including also the banks. So again, I think, ultimately, that is something which the insurance company also need to deal with, because they are saying, okay, how can I actually incentivize, how do I make a profit, and how can I share some of that profitability with my bancassurance partners? And again, it cannot be commissioned. There might be other constructs which actually might more align all the incentives of insurance company, bank, as well as consumer. So from that perspective, again, if there are restrictions, and I think that's very much like what you have in other parts of the world in neighboring markets. Again, I think that should not change fundamentally the attractiveness of the business, nor should it actually change the behavior, at least for us, clearly, will not change the behaviors. So from that perspective, I think the way how we are running our business, we are still very, very comfortable, that's the way how it should be done. Will the second half and how will the second half look like? Frankly, we don't know. And the reason we don't know is, because we don't know how quickly this confidence crisis will actually be overcome. I think there's a lot of activities right now by the insurers, by the regulators to make sure that people are feeling a little bit more comfortable. But again, it is not -- I think it's not really over yet. And as long as that is existing, people will probably think about, where do I put my money and where should I actually invest in. Now at the same point in time, the money needs to go somewhere and somehow needs to start forming kind of options how you preserve wealth. So that's either you can go into real estate, you can invest in bonds, you can invest in other asset classes. We're also present in all the other asset classes. And that's, I think, why we have a relatively diversified fee income. So from that perspective, unclear, it will really go into the bancassurance side. But again, if it goes into wealth management, other forms of wealth management, we have relaunched our offering, we should then see that kind of capture other opportunities. But again, especially on the bancassurance side, there probably is still a question mark. I don't think that we will see anything close to what we normally had in the second half, just because the confidence crisis is really still so deep, and I think we are not out of the woods yet. And that's why I think we really need to rather look into how can we diversify our income stream like what we did in the past, and we're just betting on this one horse and see what we can make out of that.

Thanks, Jens. We're down to our last few questions. Next one is for Alex. TCBS emerged as #4 market share in the second quarter, there was a good jump and now with over 5% market share. Is a 10% market share, which would be double where this is, while maintaining your profit and ROE, something that's doable in the '24-'25 timeframe?

Yes. I would say it's much easier to be confident when your market share is increasing, as is the case now. So as you said, we jumped from #8 to #4 in the market for stocks in the second quarter. And our success so far has been based on a few very simple ideas. The first one is to provide retail investors with a professional level trading platform. Then applying zero fee to transactions on stocks and derivatives, dynamically adjusting the pricing and offering frequent and free updates on macro and stock recommendations. So very simple things, but we try to do it well, and it has been quite successful so far. Going forward, the capital injection we've made into TCBS for VND 10 trillion, will give us a lot more firepower. Those things will become easier for TCBS. They will be able also to write more margin lending loans, which have a mechanical impact on transaction volumes. So for all these reasons, we are confident that the trend will continue, and we maintain our objective to achieve 10% market share.

Next question is for Jens on developer exposure. Could you give us an update on your exposure to developers? Given what's happening over the last few quarters? Is there a differentiation between your exposure to large versus small developers and how are each of these groups performing?

So our overall strategy, and I think we discussed it in a couple of sessions. So overall, when we work with developers, we only work with a couple -- with a few. So usually, we're not working with small developers. We only work with some of the largest, and even on the largest, we're probably not working with all of them; because, again, we are not quite sure how are they running the business. So when we are running our book, mostly what we are really looking at is what is the quality of the development and will somebody buy the apartments, the final product. And will that developer ultimately deliver that apartment to our end consumers. We are very much looking all the way through the entire value chain, but starting from the endpoint, which is our retail customers, do they get a good product and are they willing to pay for this good product. Because if that's clear, then I think we are pretty okay. And the other one, what we are looking at is, are the legal land rights, okay. So our exposure to buying land in terms of -- if you look through the real estate, is actually very, very limited. And usually, we're only going in after land has been acquired and the land becomes kind of injected into an SBV, which is then ultimately constructing the -- or running the development. So therefore, when you look into our book -- into our real estate or in our developer exposure, 95% is actually all in the build and sell phase of projects, which all have secured legal land rights. So that's why we are also right now, as I said, we're right now seeing as the interest rates are coming down to the pre-pandemic level, we suddenly see an uptick in the mortgage disbursements, because people are not, how should I say, confident that they're not getting a good product, but they were basically saying, at this point in time, I expect prices still to come down, and I have a good opportunity to park my money somewhere else, at 10% risk free in term deposits. As term deposits are coming down as prices have bottomed out and it's very clear, it will not go further down. Exactly the same customers are right now saying, okay, let me take this money and now start buying and investing. So therefore, again, from the pure development perspective, our real estate developer exposure is only to, maybe 5 or 6 names, and I think there are always the big names out there. There is Sun Group, there's Vin, [indiscernible]. We're only investing in projects which are prime location Ho Chi Minh City. And in Hanoi, we're only on financing in the build and sell phase. So nothing in land acquisition. All of that is actually -- needs to be kind of -- land rights need to be secured before we start touching it. So from that perspective, we look into all these projects. Again, I think our -- the way how we look at it, and I think you also see it in our book, on WB, where we would actually have these real estate and these developer exposures is 0%. All the projects are still actually selling and all of these projects are still continuing in their construction. So again, I think this is pretty much under control, and actually, we are pretty confident that there will -- nothing happen on these exposures.

Next question is for Alex. Could you share the bond book breakdown by sector, and are there any areas or sectors that are riskier than the bonds versus your overall loan portfolio?

Yes. Thank you for this opportunity to highlight a small change we've made in our investor deck, which might have escaped some of you. So we had questions in the -- in previous quarters around, okay, you showing the breakdown of your loan assets, but what about your bonds? That's why starting from this quarter, we are giving you a breakdown of our accumulated credit assets, including both loans and bonds. And what you can see on this chart on the left-hand side is that actually, the structure of our bond portfolio is essentially -- broadly the same as the structure of our loan portfolio. And there is a very good reason for that, that we apply exactly the same underwriting criteria to our bonds, and the ones we apply to our loans. Therefore, I'm always a bit surprised when I see investors, brokers, analysts, asking a lot of questions on bonds. These bonds were intrinsically riskier than loans. So they might be riskier when issued by other institutions or organizations, but not in the case of Techcombank, because we apply exactly the same criteria. And actually, for a corporate who might not have been able to obtain a loan from a bank, then there may be essentially tempted to try to issue bonds on their own. And in this case, it doesn't offer the same security at a bond, which has been underwritten by a bank. So I can't to a certain extent to understand where the question from investor analyst comes from. But in the case of Techcombank, I think its -- situation is extremely clear. And to the question around is there any specificity of this portfolio in terms of risks, there shouldn't be, right? Because the logic underwriting the asset is the same. Obviously, the assets, if you look name-by-name, maybe a bit different. Some insurers might be more present in bonds than in others. But overall, as a whole, the risk profile is essentially the same.

Okay, down to last couple of questions here. Alex, could you share some perspective on the debt service coverage ratio and the loan-to-value for developers and mortgage customers?

Yes. Absolutely, with pleasure. So debt service coverage for our mortgage customers is essentially in line with the standard market practice, is around 30% across our portfolio. When you look at the loan-to-values, the loan-to-value I showed it in the -- on this slide that you can see at the moment, so on average, across all credit assets is at 54% at the end of the second quarter. If you look at developer, certainly, it's even lower. It's at around 48%. And if you look at the mortgage holders, then the loan-to-value is around 56%. So at origination, the point of origination, loan-to-value is already conservative, typically 70%. And then the value of the underlying assets increases, then the loan to value goes down even further. So that's what essentially I wanted to say for the loan-to-value, that service coverage. On your second question around collaterals. So the most valuable component in the collateral are essentially the land. The land use rights, as Jens mentioned, and then the buildings, once the construction has started. And in order to value the collateral, so we ask an independent third party to perform evaluation, and they would carry out the valuation typically, based on the discounted value of the future cash flows.

And our final question today for Alex. Jen shad mentioned that interest rates coming down affects the -- some of the demand. What level of interest rates do you see -- for mortgages, do you see also driving a demand pickup?

Very tricky question. I think it's -- everyone probably have a different opinion about that. I would say that a lot of our customers would have informed anticipation and built their business plan, if I can say so, at a time where interest rates were precrisis levels, right at the time. So typically, where the fixed rate period for mortgage was around 9%, and at the time where the floating rate was -- for mortgages, again, were probably around 10% to 10.5%. So I think if we go back to this level, then we will see -- be in a situation where customers would be having access to interest rates, which are more or less in line with the anticipation they made at the point of investing, or at the point where they considered investing into real estate assets. We are not very far from that, right? So for primary mortgages, fixed rate period were around 9.6%, 9.7% at the moment, which is close to the 9% I mentioned earlier. So that's why we think that a little bit more of a push in the second half of the year, with a further decrease in interest rates, the conditions will be met for the real estate markets to reopen at a much larger scale.

Thank you, Alex and Jens. This concludes the second quarter financial results presentation. The presentation and a replay link will be posted on the IR section of the website soon. Please contact the IR team, if we missed any of your questions. We look forward to speaking to you again soon in 3 months. Thank you.