treasury management project vietnam technology and commercial joint stock bank

In this report, we get an analysis and evaluation of Techcombank’s risk management based on many criteria such as current credit, liquidity, interest rate risk of a chosen bank, scenario

HANOI UNIVERSITY FACULTY OF MANAGEMENT AND TOURISM

TREASURY MANAGEMENT PROJECT Vietnam Technology and Commercial Joint Stock Bank TECHCOMBANK €>

Tutor: Ms Nguyen Thi Minh Hang Tutorial class: |

Group: Group K20

Students: Pham Thi Ngoc Anh 2004040013

Nguyễn Thường Thương 2004040100 Nguyễn Thị Minh Tiến 2004040103 Nguyễn Thị Yến 2004040122

Hanoi, May 2nd 2023

GROUP CONTRIBUTION

Full name Student ID Contribution 1 Pham Thi Ngoc Anh 2004040013 100% 2 Nguyễn Thường Thương 2004040100 100% 3 Nguyễn Thị Minh Tiền 2004040103 100% 4 Nguyễn Thị Yên 2004040122 100%

Table of Contents

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Abstract

The primary means of facilitating credit transactions between savers and investors are hanks and other financial institutions They offer services to individuals, small businesses, and large corporations so that they can conduct business both domestically and abroad However, banks face risks just like any other business in the current, cutthroat business environment In actuality, the risks that banks take involve both financial and non-financial risks that the economy as a whole take, in addition to risks to the banks' capital and reputation Therefore, the basis for banks' sustainable operation has become risk analysis and risk management Understanding and managing risk entails anticipating and being prepared to handle the difficulties and dangers that banks will face in the future In this report, we get an analysis and evaluation of Techcombank’s risk management based on many criteria such as current credit, liquidity, interest rate risk of a chosen bank, scenarios analysis on the impact of income and capital hedging proposal This information is gathered from the bank's annual report and website, along with calculations and other related methods to produce more insightful findings However, due to the limited availability of public information, some portions of this report may not accurately reflect the bank's current situation

I Introduction 1 Overview

Vietnam Technological and Commercial Joint Stock Bank (Techcombank) was established in 1993, when Vietnam was experiencing an economic innovation from a centrally-planned to a more market-oriented economy Starting with a charter capital of 20 billion dong, Techcombank has become the third largest bank in terms of charter capital in Vietnam thanks to its highest profit and return on assets

In 2007, Vietnam Technological and Commercial Bank became the bank with the second largest transaction network in the joint-stock commercial banking sector with nearly 130 branches and transaction offices In 2018, Techcombank was listed on the Ho Chi Minh City Stock Exchange (HOSE) In 2020, total enterprise assets are estimated at 439.6 trillion VND with nearly 11,882 employees Techcombank owns 3 subsidiaries in charge of different tasks including Techcom Securities Joint Stock Company, Debt Management One Member Limited Liability Company, and Techcombank Fund Management Company Limited After 29 years of construction and development, Techcombank is one of the largest joint stock commercial banks in Vietnam and one of the leading banks in Asia Techcombank today is gradually building a stable financial foundation for customers to trust and choose to trade

Up to now, Techcombank has always tried to transform the financial industry and raise the value of life; motivating each person to unlock their potential and act bravely for outstanding things With core values of focusing on customers, innovation and creativity, Techcombank is growing stronger, more sustainable and promises to create many breakthroughs in the future

2 Main services of the bank

Techcombank provides a full range of financial and banking products The bank mainly focuses on serving two types of services: Personal banking and Corporate banking

Customers can use a full range of services from domestic and foreign money transfer, savings, loans, insurance, etc

For individuals, Techcombank provides customers with a wide range of products and services such as opening accounts, opening savings accounts, lending, providing e- banking services, international money transfers, investments, insurance and other services This is a bank that has many special incentives for customers when participating in loans that are different from other banks For example, in 2022, Techcombank would like to offer a privileged insurance package for customers who buy Vinhomes Ocean Park Il - The Empire project Besides, "Bance lending promotion program Q3-Q4/2022 for customers using real estate lending products at Techcombank" has also attracted a large number of customers Mobile banking applications are currently being strongly developed by the bank to bring speed and convenience to users Brand new Techcombank application, simple operation, Techcombank Mobile optimizes banking transactions with leading technology

There are some investment products such as: iBond - Corporate bond, 1Fund open-ended fund, Techcom bond fund (TCBF), Techcom Top 30 stock fund (TCEF), TCREIT real estate investment fund With an expected profit of up to 12%/year, investment capital from only 10,000 VND, the number of customers participating in iF UND investment up to 80,000 people (annual report 2021)

The second type of customer service is for businesses and corporations For corporate customers, Techcombank provides services such as day-to-day administration, borrowing, commerce, capital and insurance In 2020, the world experienced a social disruption unprecedented with enormous impact on economies of scale yet seen in history because COVID-19 has created instability on financial markets and businesses globally and in Vietnam However, total operating income of the Corporate Banking Division (“BB”) still grew well at arate of 17.6%; CASA grew at 35% annually; and income from service activities increased by 35.8% compared to 2019 The application of new technological

advances to online banking, especially in overseas remittance and foreign exchange transactions, has brought convenience and safety to customers’ daily transaction needs as well as promoting the adoption of digital channels 81% of BB's customers regularly make transactions via electronic channels (compared to 65% in 2019) BB's e-banking transaction value increased 68% year on year

II Analysis of credit risk, liquidity risk, interest rate risk

1 Credit risk

1.1 Non-performing loan ratio

According to Investopedia, A non-performing loan is a loan that is in default due to the fact that the borrower has not made the scheduled payments for a specified period Although the exact elements of nonperforming status can vary depending on the specific loan's terms, "no payment" is usually defined as zero payments of either principal or interest Therefore, managing credit risk is one of the most important roles that each bank’s managers need to consider In this report, we are going to analyze one of the most essential ratios that help the manager to evaluate the risk, which is NPL as known as Non-performing loans

Year 2019 2020 2021 2022

Non-performing | 1.3% 0.5% 0.7% 0.9% loan ratio (NPL)

Coverage ratio 94.8% 171.0% 162.9% 125%

Table 1: NPL & Coverage ratio of Techcombank from 2019-2022

Statistics from the 2022 financial statements of 27 banks show that the picture of bad debt has quite strong differentiation In general, the bad debt ratio tends to increase in the majority of banks, and currently, only a few banks keep the bad debt ratio below 1%, including Techcombank The NPL of Techcombank is quite higher in 2019 (1.3%) but sharply decreased in the period of 2020-2022 The bad debt ratio at Techcombank has tended to increase in the past year from 0.5% in 2020 to 0.9% in 2022 but is still in the lowest group Specifically, the bad debt ratio at the end of 2022 of this bank was 0.9%, an increase of 0.7% in 2021 At the same time, Techcombank's coverage ratio increased from 94.8% in 2019 to 125% in 2022 This ratio shows that Techcombank has allocated significant resources for provisioning and covering non-performing loans, which helps to minimize risks and increase stability for the bank

In the context of high-interest rates globally, the system liquidity is less abundant, and with negative psychology about the real estate market and bonds, customers tend to reduce cash holding for investment or spending And increase the savings account In this context, the strong growth of the term deposit balance has shown the fierce instant action of the bank, ensuring domestic capital when the borrowing cost from the international market suffered from the international market Double impact (due to the influence of interest rates and exchange rates), as well as showing high trust of customers in the brand and system safety as well as Techcombank's operation

1.2 Credit risk management

The handling of bad debts is always a problem for business managers as well as banks, because it takes a lot of time and effort, so the handling of bad debts needs to contribute from many sides, both banks and businesses Techcombank's low debt ratio is a new signal that the private commercial banking group has focused more on risk management

In order to reduce and limit bad debts, banks should develop bad debt handling programs with specific measures There are some suggestions to help manage credit risk for Techcombank:

First of all, focusing on Techcombank's human factor is the most effective, sustainable, and long-term bad debt handling measure The lack of capacity of credit officers, lack of professional qualifications, and moral status will lead to errors when evaluating and analyzing assessments when making loan decisions, increasing the likelihood of capital loss for the bank Therefore, with a team of competent and professional qualifications, they will build spending on bad debts appropriately, bringing high efficiency in handling bad debts for Techcombank

Secondly, the bank's lending activities are always risky, so the development of risk management policies is a guideline for lending activities In order to adjust the credit activities in general and lending activities in particular m accordance with the bank's business strategy in each period The strengthening or loosening of the management and handling of bad debts is in the direction and level of risk acceptance of the bank Depending on how much the bad debt ratio is, the bank will take effective adjustments to control and handle bad debts in the best way

Finally, the organizational model has a direct impact on planning and deploying bad debts, with commercial banks with a clear organization model, clearly distributing the functions and tasks of each department Helping commercial banks operate smoothly, and achieve optimal efficiency in handling bad debts In addition, the Bank's Executive Board is also an important factor in making clear decisions and orientations for credit officers and consistent in performing control and handling of bad debts according to the viewpoint that the Board of Directors gave

2 Interest rate risk

Interest rate risk (IRR) 1s the ability of the Bank to face an unexpected decline in profits or loss of assets due to fluctuations in interest rates Interest rate risk is one of the specific risks of commercial banks, greatly affecting the Bank's income and equity value because interest income and interest expenses are the main sources of income and expenditure of banks Good interest rate risk management is an important condition to improve the

quality of the bank's business operations Techcombank has applied some methods of measuring interest rate risk are NIM (Net interest margin), Dollar gap About interest sensitivity Gap (Dollar Gap) analysis is a method of managing assets and liabilities It represents an imbalance between interest-sensitive assets (RSA) and interest-sensitive liabilities (RSL), which directly affects a bank's net interest income (NII) The table below is the dollar gap calculation taken from annual reports of Techcombank from 2019- 2022

2019 2020 2021 2022

RSA 332,762,404 369,788,377 506,539,002 591,330,444

RSL 304,042,028 352,227,847 460,372,848 552,362,827

SGAP 28,720,376 17,560,530 46,166,154 38,967,617

(Unit: VND million) Table 2: Dollar gap of Techcombank (2019-2022)

According to the data in the table, Techcombank's interest rate sensitivity gap has increased steadily over the past 4 years With a positive interest rate sensitivity gap, Techcombank is prone to losses when interest rates fall To hedge interest rate risk, banks must maintain RSA with RSL Besides, a positive spread also means that when market interest rates rise, the bank's profit or revenue is likely to increase

Table 3: Net Interest Margin of Techcombank (2019-2022)

The table above shows that there has been a significant increase in Techcombank's net 1nterest income from 2019-2021, and then decreased slightly m 2022 (5.11%) With positive interest-sensitive GAP, the risk will occur in the case of decreasing interest Interest income will rise faster than interest expenses which leads to the increasing of NIM Although there has been a slight decrease in NIM (2022), it is still maintained at a high level Therefore, it can be seen that Techcombank has been able to keep the growth of revenues and operating expenses well

3 Liquidity risk

Liquidity risk is a type of financial risk that arises from the uncertainty and potential costs associated with the mability to sell an asset quickly enough to meet funding needs or to exit a position at a fair price Liquidity risk can be characterized by both the lack of market depth and the time needed to execute a transaction, which can result in significant transaction costs or a loss of value due to unfavorable price movements

There are several financial ratios that can be used to analyze and measure liquidity risk, including: Current Ratio, Quick Ratio,Cash Ratio,Net Stable Funding Ratio (NSFR), Loan-to-Deposit Ratio (LDR), However, we will focus on Loan-to-Deposit Ratio (LDR), Short-Term Fundings to Medium-Long-Term Loans ratio and Capital Adequacy Ratio analysis

3.1 Loan-to-Deposit Ratio

The Loan-to-Deposit Ratio (LDR) the LDR ratio measures a bank's ability to meet its short-term obligations by comparing its loans outstanding to its deposits A high LDR ratio may indicate that a bank is lending out a large portion of its deposits and may have a higher liquidity risk However, a low LDR ratio may indicate that a bank is holding onto more deposits than it is lending out, which could limit its profitability The ratio is calculated by dividing a bank's total loans by its total deposits

Based on Techcombank’s balance sheet, we have the following current ratio:

Table 4: Loan to deposit ratio of Techcombank from 2019 to 2022

Analyzing the loan-to-deposit ratio data from 2019 to 2022, we can see that the ratio has fluctuated slightly over the years, but has remained relatively stable In 2019, the ratio was 76.3%, indicating that the bank had issued $76.3 in loans for every $100 in deposits it had received This ratio increased slightly to 78.1% in 2020, before decreasing to 75.0% in 2021 In 2022, the ratio increased again to 76.6% In general, an LDR of around 80% is considered healthy for most banks

The increase in the LDR from 2019 to 2020 suggests that Techcombank may have increased its lending activity relative to its deposit base during this time However, the subsequent decrease in the LDR in 2022 may indicate that the bank has taken steps to reduce its lending activity or has experienced an increase in its deposit base It is difficult to fully interpret these changes in the LDR; it would be Techcombank's loan portfolio quality changed over this time period or the bank implemented any changes to its funding

strategy