How Techcombank steers a strategic approach to treasury
Vietnam is generally well-placed in a post-Covid environment to maintain the macro stability it has benefited from since it implemented disciplined monetary and fiscal policies in 2014.
These led to FX inflows that have supplied liquidity to the banking system, in turn enabling the central bank to secure lower interest rates to support the economy. Low credit growth during the pandemic has further boosted liquidity.
Yet within individual institutions, treasurers face various challenges due to uneven financial health across the banking landscape.
For example, many domestic players experience big gaps in operational efficiency and asset quality. In addition, the early stage of development of Vietnam’s debt capital markets has led to overfunding from customer deposits that negatively affects these banks’ funding costs and performance. Plus, banks must offer significantly higher rates to compete for required funds. Further, stiff mandatory requirements around liquidity provisions, credit growth and loan-to-deposit ratios pose challenges for local institutions.
Against this backdrop, Techcombank treasurer Truong Vu Minh has capitalised on the bank’s strong performance, low NPL rates and good coverage ratios to spearhead sound funding strategies and match treasury solutions to the needs of the business.
With his business acumen and leadership, coupled with unrivalled investment and adoption of technology, the treasury department has played a unique role in contributing to Techcombank’s impressive developments over recent years. For example, it was the second-largest bank in Vietnam in terms of profitability in 2020, with total operating income and profit before tax of 23.6% and 58.4%, respectively.
“Treasury is at the centre of a bank’s business operations and activities, managing liquidity, funding and other asset and capital allocation decisions,” explained Truong.
An innovative approach to funding
In Vietnam, in particular, due to the large gap in interest rates between the customer and interbank markets, a key to maximising profits for a treasury unit – and the bank in general – is to manage surplus funds with sufficient liquidity to comply with all regulated ratios.
To do this, Techcombank has created a clear mechanism for managing surplus funds – firstly, by establishing appropriate surplus fund targets in each liquidity scenario, and secondly, also by keeping track of the current target surplus and taking timely actions to manage this level.
The impact has been strong. During 2020 and the first half of 2021, with the proportion of surplus funds kept at an average of 1% to 2% of total deposits, the treasury’s year-on-year profit within the bank increased by 118% and 160%, respectively.
Techcombank has also been focused on diversifying its funding mix to lower funding costs. An example of this was the move since 2020 to increase the proportion of funding from the professional market, such as issuance via bonds, international syndicated loans and certificates of deposit (CDs).
“We chose to raise short and long term funds from bonds, syndicated loans and CDs in US dollars in the onshore/offshore market to diversify our funding sources, maintain strong liquidity, extend our liability maturity and achieve lower funding costs,” explained Truong.
Driving business solutions
Beyond funding, the Techcombank treasury team has led a number of specific initiatives to help the bank to operate more efficiently and effectively.
Among these has been a rolling targeted balance sheet for the upcoming three business months. This gets prepared using forecasts from business units and the treasury team’s evaluation of different internal and external factors such as compliance, liquidity and interest rates. This is also monitored and adjusted when needed.
“It allows us to respond more quickly in an environment where the bank is growing rapidly and where there are often changes in central bank regulation and policy as a result of a very open Vietnamese economy,” added Truong.
Also notable has been the treasury team’s involvement in raising medium- and long-term funding to support the growth of medium- and long-term assets across various business divisions.
Meanwhile, there is also close coordination between treasury and the trading team. “Considering the relatively small size of Vietnam’s financial market, we decided to leverage the bank’s market trading team to get access to the interbank market,” said Truong. “Having one point of contact helps to optimise resources, minimise costs and improve trading efficiency, thereby increasing profits for the bank as a whole.”
A key benefit of these and other treasury initiatives has been the ability of Techcombank to strengthen individual business units, solidify risk management and also position the bank for overall expansion.
Growth drivers have come from various projects, such as working with the institution’s retail banking group to provide fully-tailored financing packages to meet customer demands for mortgage loan products. The treasury team has also collaborated with the wholesale banking division to provide financing packages for trading customers.
From a risk management perspective, the treasury’s role has been to forecast interest rates and liquidity for effective liquidity support and interest rate management of the bank, as well as implement advanced risk, capital management and reporting standards.
Integral to many of Techcombank’s treasury recent achievements has been the influence and engagement of digitalisation and new technologies.
For example, it was the first institution of its type in Vietnam to upgrade its Kamakura Risk Manager (KRM) solution from version 8 to 10. This has enabled the treasury function to enhance its balance sheet management by managing its risk profiles actively and optimising returns more dynamically.
“It provides us with an accurate and comprehensive view of the total financial risk of the organisation, as well as the tools to manage that risk,” said Truong.
Such insights are essential in an increasingly challenging global environment. “We require a more advanced integrated enterprise risk management system to support the bank’s growth aspirations,” explained Truong.