Techcombank figures pointing to strategic victories

Techcombank figures pointing to strategic victories (photo baodautu.vn)

Drawing on its expertise as one of the most reputable lenders with deep local knowledge and international expertise, the Hanoi-based lender is continuously innovating and executing new propositions that upholds Techcombank’s role as the top commercial bank in the country.

The bank has released its financial results for Q1, which had it beating analyst expectations with reported profits in the period reaching VND4.4 trillion ($191.3 million), up 79 per cent year-on-year and an increase of 11 per cent quarter-on-quarter.

The bank has continued to be supported by world-class investors, and top analyst expectations, with JP Morgan, UBS, Morgan Stanley, SSI, Maybank among others noting Techcombank’s deep knowledge of the local market, wide range of networks, product diversification, and high-calibre management team.

Techcombank is now enjoying a boost in its popularity and becoming the top pick among Vietnam’s listed lenders according to multiple indicators.

Most recently, JP Morgan reiterated its “overweight” rating on Techcombank. The bank’s pre-provision operating profit witnessed a 58-per-cent increase year-on-year which was 26 per cent above JP Morgan’s forecast thanks to the bank’s strength across net interest income (NII) and non-interest income (non-II).

NII grew 45 per cent year-on-year and 12 per cent quarter-on-quarter, on robust 5.7 per cent quarter-on-quarter loan growth and lower cost of funds which led to net interest margin (NIM) expansion.

“While treasury gains contributed to non-II, fee income grew 54 per cent year-on-year led by settlement and cash services, suggesting a degree of sustainability,” JP Morgan noted. “Further, asset quality held up well, with the non-performing loan (NPL) ratio declining 8 basis points quarter-on-quarter to 0.38 per cent, while credit costs were broadly in-line. Costs were up 20 per cent year-on-year, which is in line with estimates. The broad-based revenue strength suggests potential upward revisions from our forecasts for this year.”

These upbeat results indicate the bank’s robust operating trends and also reaffirms its agility to expand its business scale given its capital of 16.1 per cent. JP Morgan also noted the case for a re-rating, on top of 20 per cent earnings-per-share in compound annual growth rate from 2020-2023.

UBS, a Swiss multinational investment bank and financial services company, also named Techcombank as their top pick, with a strong “buy” recommendation. “Techcombank reported its Q1 pre-tax profit of VND5.5 trillion ($240 million), up 77 per cent year-on-year and 16 per cent ahead of UBS expectations, respectively driven by NIM expansion, a solid loan growth, and robust non-interest income on the back of solid fee growth and gain from bad debt recovery,” noted UBS analyst Worawat Saisuphatphol.

Although NPL formation increased, the ratio fell further to a record low of just 0.38 per cent helped largely by provision of loans sold. This effort to contain the detrimental impact of potential problem loans has brought about an all-time-high NPL coverage ratio of 219 per cent, as the bank has successfully built a solid provision buffer.

“We see some upside risk to our earnings estimates and expect the market to react positively. Techcombank is our top pick, and we maintain our opinion to buy for this leading, most active Vietnamese lender,” Saisuphatphol added.

According to JP Morgan, Techcombank is one of the rare banks across the region that is making money on both sides of the balance sheet, as well as on fee income, adjusted for all allocated costs, allowing for longer-term visibility on returns.

Techcombank has proven its vast potential as the most profitable bank in the country on return on assets despite having a low deposit market share of 3 per cent.

“The bank has the distinctive ability to manage its loan growth within a system that regulates total credit. This is due to a large corporate bond book and a 63-per-cent loan/asset ratio. Further, high capital and low NPLs allow for credit quotas in the 20 per cent range for the next three years,” JP Morgan noted.

The bank’s zero-fee programme and 1-per-cent cashback debit card have led to sharp improvement in current account saving accounts, to 44 per cent of deposits in 2020 from 22 per cent in 2017.

“We expect further improvement to 50 per cent by 2023, leading to higher NIM. Moreover, we expect Techcombank to be on a self-sustained capital level, given its return on equity/growth combination,” JP Morgan said.

Techcombank CEO Jens Lottner told VIR, “Techcombank’s ultimate goal is to become a top 10 bank in the Southeast Asian region, to have scale and capacity to deliver the best customer journey.” In order to get there, Lottner asserted that Techcombank will focus on sustaining its current account/savings account growth, and investing into its tech and data infrastructure as well as its people.

Previously, Maybank Kim Eng Securities (MKE) applauded the lender’s strategy to focus on top private sector companies, upper small- and medium-sized enterprises, and affluent retailers. Similar to analysts from JP Morgan and UBS, MKE analyst Thanh Quan reiterated his strong conviction in Techcombank citing “more room for further re-rating” as the stock as of May 4 traded below the local peer average despite its banking platform, earnings power, and quality being superior as revealed in industry-top operating metrics.