Diversifying loan portfolio and segments
Statistics from financial reports show that the outstanding loans of 27 banks listed on the stock exchange fluctuated between 6.1-32.7% in 2023. According to experts, in the context of a difficult economy, the opportunities and challenges of each sector and industry vary, banks that are able to forecast and flexibly adjust their loan portfolio will be able to grasp the direction of efficient growth. In particular, identifying the core sector and selecting good customers not only helps banks expand their market share and increase revenue but also helps banks maintain the quality of healthy assets in the long run.
In 2023, Techcombank diversified its credit portfolio into fast-moving consumer goods and other sectors such as entertainment, tourism, automobiles… Outstanding loans to small and medium-sized enterprise (SME) customers increased by 16.8% compared to the beginning of the year.
In 2023, outstanding loans at Techcombank increased by 19.2% to VND 530,148 billion, a growth rate much higher than the industry average (over 13%). The bank’s credit growth is still being led by the large corporate customer segment, however, the outstanding loans of the MSME customer segment grew by over 16.8% compared to the beginning of the year. Overall, in 2023, Techcombank diversified its lending portfolio into Fast Moving Consumer Goods (up 15% YoY), Utilities (up 56% YoY), and Other Sectors (such as Entertainment, Tourism, Automobiles…), up 123% YoY. Of which, outstanding loans to small and medium-sized enterprises (SMEs) increased by 16.8% compared to the beginning of the year, although this was a difficult segment in the past.
In terms of revenue, Techcombank continued to witness a remarkable growth in service fees. This is one of Techcombank’s top and important goals, as it helps diversify revenue as well as improve capital efficiency.
The bank’s portfolio has recorded steady growth throughout 2023, with the momentum also reflected in most other performance metrics. Techcombank’s total earning assets increased by 23% in 2023.
Value chain lending governance model
According to Mr. Alex Macaire, CFO of Techcombank Group, in the first half of 2023, credit growth mainly came from the corporate customer segment, then gradually shifted to the retail segment, and this transition is in line with the recovery of the retail real estate market.
Techcombank takes a value chain approach to its lending activities. For example, in the real estate sector, Techcombank provides loans to investors to develop housing projects. As the project is implemented, the credit flow will go to construction contractors, building material suppliers, and finally to homebuyers in the project. This keeps the cash flow circulating within Techcombank’s account system and disperses risks across a diverse customer base throughout the value chain.
“That’s how we manage credit risk, and transfer capital flow from corporate customers to retail customers, thereby diversifying the bank’s loan portfolio. The value chain approach has positioned Techcombank’s pioneering role in this effective model, helping us continuously reach and attract the most valuable retail customer base in the entire market,” said Mr. Macaire.
Tight risk management helps Techcombank’s credit growth achieve high business efficiency, with a non-performing loan ratio among the lowest in the system.
Credit growth coupled with strict risk management helped Techcombank record positive business results in 2023. Techcombank’s consolidated pre-tax profit in 2023 reached nearly VND 22,900 billion, exceeding the plan of VND 22,000 billion. The bank’s bad debt ratio was at 1.19%, among the banks with the lowest bad debt ratio in the system. The bad debt ratio of both the loan and bond portfolios was 1.12%.
In terms of segments, the non-performing loan ratio of retail customers decreased due to the bank’s strengthened risk management measures when lending through credit cards, while the asset quality of large corporate customers remained stable at 0%.
Total financial demand in 2024 is expected to continue growing
The issue of credit growth is a top concern for the banking industry in 2024. Last year, the difficulty in achieving new credit growth caused many banks to fail to complete their business plans. At the banking industry conference earlier this year, the State Bank of Vietnam reported that the credit orientation for the entire economy would increase by about 13-14%, similar to the growth rate of last year. What is special is that the management agency has allocated the entire year’s credit limit to banks. Accordingly, banks can be more proactive in implementing their business plans, especially for banks that have the potential to grow better than the general market.
“Credit demand from retail customers will recover more strongly in the second half of 2024” – Ms. Pham Lien Ha, Head of Research, Financial Services Sector, HSC
Ms. Pham Lien Ha, Head of Research, Financial Services Sector, HSC Securities Company, believes that credit demand in 2024 will recover and grow better than in 2023. The driving force in the first half of the year may come from public investment, import-export, or the FDI customer segment. Ms. Ha also said that credit demand from retail customers, both for consumption and investment purposes, may recover more slowly, but will be quite strong in the second half of the year. Regarding the net interest income ratio (NIM), after declining by an average of 50 basis points in 2023, the expert expects a slight recovery of about 20-30 basis points.
Sharing the same view, Mr. Phung Quang Hung – Deputy General Director of Techcombank – said that the proportion of the middle class and above population is increasing rapidly and may continue to increase strongly in the coming years. This shows that there is still a lot of room to provide financial products, thereby expecting total financial demand in 2024 to continue to grow.
Mr. Phung Quang Hung – Deputy General Director of Techcombank said that diversifying the credit portfolio is still one of Techcombank’s three priority goals in 2024. The bank said it will boost lending to retail and SME customers, including accelerating the deployment of Smart Credit, a digital platform for non-asset-backed loans. In addition, to further diversify its corporate loan portfolio outside of real estate, Techcombank will launch new integrated services that combine supply chain financing and dynamic discounting to optimize liquidity in the integrated value chain.
Alongside the positive credit growth outlook, Techcombank also believes that funding costs will continue to decline and NIM will improve, although the improvement will be moderate due to the impact of fierce competition on interest rates. The bank expects net interest income to return to double-digit growth in 2024.
In a recent analysis report, KBSV believes that Techcombank’s credit growth will be quite positive in 2024, even expecting the bank to be granted additional limits. Techcombank’s credit growth will be led by the corporate customer segment, project financing lending will recover after two difficult years thanks to the government’s measures to remove obstacles for the real estate market and the interest rate level has become
