Techcombank CEO: How a bank grows is defined by how it keeps its promises to customers

Jens Lottner,Techcombank CEO

Many banks are joining the fray to increase their Current Account Saving Account (CASA). How would Techcombank manage CASA to stay ahead?

While we have other sources of funding, for example, tapping international markets where we can issue some US dollar instruments at relatively low prices, a high low-cost capital source (CASA) ratio remains one of our key strategic pillars. Not only is it relatively less expensive, it is also very stable and allows us to understand our customers much better.

There are two key strategies we are pursuing. Firstly, we are developing better transaction banking platforms for individual and corporate customers which will allow customers not only to transact conveniently, but also smartly. With “smart” I mean helping customers to understand how they spend their money and how to make more out of their money in terms of using great offers, invest excess cash or draw down accessible credit lines easily when they need some extra funding.

Secondly, we will use our value chain approach. Liquidity does not disappear within a value chain, but at any point in time this liquidity might sit with different members of the chain. As companies are paying their employees, their CASA might go out overnight, but it will be credited into the accounts of their employees. That is why we are trying to provide transaction banking services to customers across the entire chain, so that while CASA moves from one account to another it still stays within Techcombank. I believe we still have ample opportunities, and from the numbers we are seeing, we are still able to expand our CASA ratio.

Other banks are targeting to raise their charter capital. How about Techcombank?

We are not so much concerned about our capital for now, but we are seriously monitoring ratios like capital adequacy ratio (CAR). While the minimum CAR stipulated by the State Bank of Vietnam (SBV) is 8 per cent, if you look at leading banks in the region, you will find CAR levels at around 15-16 per cent, which is what we also feel comfortable with in the long term. We are at 16 per cent CAR, and as long as we maintain the ratio, we do not need more charter capital.

The SBV has recently adjusted credit quotas by quarters. Will it pose challenges for your operations?

So far, we have not experienced any problem. The way SBV is regulating it is to get a better feeling of what the economy actually needs and adjust it accordingly to avoid overheating through excessive credit expansion as well as slower GDP growth through limited credit supply. If anything changes, we still have other instruments at our disposal to ensure enough flexibility in our balance sheet to enable us to meet the credit needs of our customers.

Techcombank has recently trumpeted the goal to have a $20 billion market cap by 2025. How can you justify it?

If you think about the $20 billion market cap, it is ultimately the question of whether we can continue our growth trajectory. We believe we can maintain a 25 per cent growth trajectory across all key value drivers, which means we should be able to continue our 25 per cent profit growth trajectory.

Within the next five years, we should be able to retain roughly $5 billion equity, in addition to the $3.4 billion at the end of the first quarter this year. Judging from other markets and the past, we believe investors would be willing to pay 2.5x price to book valuation for a company growing top and bottom line at 25 per cent with a 20 per cent return on equity (ROE) in a high-growth banking market. That would lead you to a $20 billion market cap.

There is a difference to claiming that you will deliver such a performance and actually performing on that level. We are relatively new compared to some of the other banks, the likes of state-owned commercial banks and other banks in the region. So this is about track record and "Are you delivering what you're promising?" From the calculation before, you can see that if the numbers work out as planned, $20 billion might be the lower end. Because once we build the credibility, as you see in other markets, the price to book value ratio can be even higher. However, for us this number is just a translation of our aspiration to be one of the top 10 banks in ASEAN.

There is an increasing competition in areas where Techcombank has advantages, like mortgage. What would you do to stay ahead?

Going into mortgage lending is not without risk. Indeed, no business has no risk. If banks are coming in, they need to understand exactly how this whole chain is working. There is a lot of expertise which is the key to our success in mortgages, which is not so easy to replicate. However, we see pressure on interest rates as other banks also want to participate in this market. That is why I said we want to maintain CASA in order to lower costs of funds, providing flexibility and options to choose the right segments we want to go in.

On the CASA side, you have seen how this has played out. We have been very successful when we introduced our “Zero-Fee” programme, but now zero fee for transactions has become the norm. So I believe, in order to succeed, you need to find some more sustainable value proposition.

As I mentioned before, in the end, it comes down to convenient and smart transactions, how to ensure that while you pay and transact seamlessly you make the most out of your money. Loyalty and cashback programmes are examples, but how banks run these programmes and how they can create the best customer experience is also very different, and execution to give better customer experience would decide which banks they will stay with over time. That is why we are investing significant amounts into all aspects of technology, from transaction platforms over data infrastructure to digital marketing capabilities to enable new and better experiences, to help customers manage their money conveniently and smartly. Over the next five years, we will invest over VND10 trillion($434.8 million) in technology, and just the data infrastructure will take up more than VND1.5 trillion ($65.22 million) over the next couple of years.

Lastly, we spend a lot of time trying to understand exactly what our competitors are doing. In today’s world we look very much beyond banks. What would happen if suddenly Grab starts giving credit at scale? What would happen if Lazada starts going into supply chain financing? There are a lot of other companies who have customer access, deep pockets, and are not as tightly regulated. That is what we are watching very carefully. And the best answer to that is investing in technology, data, and people. Having the advantage of a trusted bank should hold us in a good, steady competitive situation. If there's more competition, ultimately customers will benefit, but customers will also be the ones to decide.

Can you take us through how going into the value chains would position Techcombank in the market?

It comes down to customer centricity. The main success factor for every chain is to ensure that goods are flowing as seamlessly as possible from producers to consumers to increase sales and keep inventory costs low. As these goods flow, money changes hands. Banks are doing their part to make these chains as efficient as possible through providing liquidity across the chain while mitigating risks for every participant. For every chain we are participating in, we try to understand where this flow is not working smoothly and where the chain is breaking down.

For example, if you look within our ReCoM sector approach, from acquiring the land bank to selling the final units to customers, every single time we go in, we try to see how we can shorten the timeline in every step. And we are doing the same with fast-moving consumer goods (FMCG). As we take down the risks for parties in the value chain, it reduces time and financing needs for the chain, and ultimately, the profit which comes out of it can be shared amongst all parties.

If we are able to replicate that in other sectors, that would allow us to diversify our corporate portfolio and also go into the small- and medium-sized enterprise (SME) space. It would give us more ability to expand our credit book and therefore give us a chance to continue our growth on the credit side of 25 per cent.

What is your take on agent banking? And how is Techcombank doing this?

There is an overall interest to increase financial inclusion which the traditional banking system will be very difficult to facilitate. However, giving every single general trader or mom-and-pop shop the ability to act on behalf of banks is clearly not an option so there needs to be a different approach.

We have seen in other markets like for example the Philippines or Thailand how such a model could work. Collaboration between different parties like telcos and banks or retailers and banks can lead to agent models which allow to offer financial services to a broader range of customers at significantly better economics. Of course, such a framework needs to be developed under the guidance of the SBV to address critical issues like safety, transaction integrity, and data handling, among others. However, I believe that big companies like Masan and Techcombank could establish a very safe and scalable banking model to provide the full range of basic banking products to every household in Vietnam by combining physical presence with technology solutions. If we can find the right model in conjunction with the regulator, we will pilot it. It is still early, but we believe there is a huge opportunity.