Below is the transcript of an interview with Techcombank CEO Nguyen Le Quoc Anh. The interview will play out in CNBC's latest episode of Managing Asia on 8 June 2018, 5.30PM SG/HK (in APAC) and 23.00 BST time (in EMEA). If you choose to use anything, please attribute to CNBC and Christine Tan.
Christine Tan: Shares of Techcombank went public on the Ho Chi Minh stock exchange this week, as CEO, are you finally relieved and happy that the IPO is finally done?
Nguyen Le Quoc Anh (QA): It's merely a first step. So, yes there's a lot of hard work preparing up to it, but the common refrain is that if you know Quoc Anh, the fact that this stage is over merely means that we are going for another big stage.
C: Shares of Techcombank dropped as much as 20% on its trading debut, are you worried about the market volatility and the broader selloff you're seeing in emerging markets?
QA: Not at all. I'll share a little bit, there's a little bit of price discovery that the local market needs to find. So when we went on the roadshow we did the 144A so in technical terms what we are doing is that we only sell to the qualified institutional buyer. With that rule it's actually very strict and we are not allowed to communicate to the local community or the local investor community what the bank is about and what our strategies and practices are. So insofar as the local investment community is concerned over the last 1-2 months, there has been a huge blackout in information and the shares have not been traded so I think there is some profit taking because the listing is very high in terms of where it was before the lockdown and they took it as some sort of price discovery. So I'm not so concerned about that, another way of saying is for the institutional buyer they have more than 2 months to digest that information, and so there's some nervousness from other people, but to me it's part of the discovery.
C: So what are you going to do with the 922 million dollars in proceeds?
QA: Actually we do have a lot of capital investments that we've planned and we do have a big transformation plan. About 300+ million of that over the next 3 years will be invested into technology, upgrading our platform and beginning to really truly build up our digital banking to reach the hard to reach population areas. As you know in Vietnam actually 2/3 of the population does not have banking services and it's impossible to serve the rural population through the standard banking offices and whatnot so digital media is practically the only way that you can serve people the way they want it and at the lowest cost possible. So that's a huge investment.
C: When you look at concerns in the market there're also worries about the slowdown in Vietnam given the strong growth we're seeing in the first quarter. As one of Vietnam's largest private lenders do you get a sense that demand for financial services won't get affected?
QA: Actually as far as our client base is concerned, and we have a strong client base, we don't see a change in their economy at all. But then again what I want to share is in terms of the way the economy of Vietnam is going, I think everything is going very well from our indication. This is especially in our client base both in terms of retail which is mostly the affluent and upper middle class and middle class. For the SMEs as well, all of their businesses are moving very well and all of their cash flows are very strong. So insofar as we can tell, there's nothing afoot. I think the government sector is trying to work through some of the elements however and some of the government projects may experience some slowdown. But for us we don't actually serve very much in the government sector so it doesn't affect us in any way.
C: The Vietnamese central bank cut rates last year to spur growth. From where you sit as CEO of Techcombank, where do you see growth in the country?
QA: Vietnam actually is a very broad-based economy. It is mostly an exporting country, but there's also a lot of in-country consumption as well, so from where we sit, a significant portion of the foreign direct investment is spurring growth in Vietnam. Most of the exporting is high-end product exports such as the high end Samsung phones like the Galaxy or the Note, or the high end Samsung TV. It's the same for Intel for too. Vietnam is also a big place with a lot of manufacturing for clothes and shoes and a lot of those continue to grow. For in country consumption, a lot of middle class consumption is rising so the food and beverages and a lot of household goods are growing.
C: So Vietnam is projected to grow about 7% in 2018, what does this mean for the bank in terms of loan growth?
QA: Yeah, so the rule of thumb for me is the bank loan growth normally goes to about 2 times the GDP, or 2-3 times. So we will see about 16-18% and on the high end probably exceeding 20% loan growth. Now, the Central Bank wants to limit the bank's loan growth so they want to look at it from a case-by-case basis, so at the beginning of the year the Central Bank tells everybody how much they should be able to grow. For us then what we do is we look at our strategy, we look at our plan, and we will then by the 3rd or 4th quarter work with the Central Bank to show our solid growth areas, tell them we would like to continue and then they will do a case-by-case evaluation.
C: So does this mean that it limits how much you can grow your net interest margin?
QA: Absolutely, so there's 2 ways of looking at it. In the country in terms of interest rate to the customer, we are a market-taker just like everyone else. So in order for us to grow our NIM, what we have to do is manage our cost of fund, how we take deposit and the structure of the deposit. Another key element is how we manage our reputation and that affect the deposits and less so on setting the rate on the real customer.
C: So the bank returned to profitability after 5 years of winding up its balance sheet, writing off bad debts. How do you see the bank this year? Where do you see profitability?
QA: Our strategy is that we would achieve about 20% plus in Return on Equity year over year, so the way that we get that is that we would normally see and plan for about 30% year over year growth in revenue. And then we would have what I call an overspending of investment on the people and the infrastructure, so then the net gain we would have is about 20% in Return on Equity, so with that the way that we structure the income though is that a significant percentage of our revenue should come from the fee base or from the banking services.
C: Give me a breakdown?
QA: Ok, say for example - I would say a little bit more than 50% of our income should come from the interest based, or lending based businesses, a good 30%-40% will come from strict fee based businesses and then about 10-15% of that will come from businesses such as credit cards and whatnot so those are the areas where we want to have a very balanced growth, and a balanced revenue.
C: So the bank has spent the last few years winding down its bad debt, NPLs have come down from its peak of 3.7% in 2013. What is the NPL ratio now?
QA: So we are below 2% for this year, and every year we target below 2%
C: Can you go lower?
QA: Yes, and we are quite below that, I think we are probably 1.6 or 1.7 or so and by year-end I'm looking for it to be even lower.
C: How much lower?
QA: Well, I guess I can't predict that very well but I will aim for between 1.5-1.6%. The key indicator for us especially for the local market is the net charge after the bad debt, so a significant percentage of our loan has actually recovered nicely. Our goal is to work with the borrowers to make sure that they're cured and they get back to being able to repay their loans properly
C: Under your leadership you're making a shift away from a corporate base fund to a retail-focused fund, recently you had an exclusive partnership with Manulife to beef up your insurance offerings. What else are you doing to expand your retail banking services?
QA: The key word that you're using there was partnership, and that is actually a very, very important part of our strategy. So as I mentioned, the bulk of our business, 90%+ of our business spans just 6 sectors of the economy. In each sector we choose a large corporate as a primary partner with the objective of understanding and servicing their end-user to the best of our ability. So let's say for example with Vietnam Airlines, they are one of our large corporate partners and we used their frequent flyer program in order to help them service their customer better. At the same time we also have the co-branding card, one of the most successful co-branding cards in the country, and we used their program to help them service their customer and our customer as well. So the partnership is key and Vietnam Airlines is a key element. We also work very, very closely with VinGroup, the real-estate developers. We've worked with them very closely on the residential real-estate development with the objective of servicing the end buyers. So you're right when you said that we are shifting away from large corporates. What we're doing is shifting away from lending to large corporates to focus on lending to the end-user base of the large corporates. Now this is a win-win situation, because a large corporate's final objective is to service the end-user and they borrow to do so. We actually go further in terms of customer record, customer data, and customer understanding so we have a much better understanding of our large customer base of 5 million plus. When we work with Vietnam Airlines, they don't have 5 million frequent flyer customers. So they would love to be able to understand how to service their different customer segments better, and that's what we bring to them.
C: Your overall vision is to be the leading bank in Southeast Asia, but in terms of asset-size you're about a fourth of the biggest state-owned bank in Vietnam and Singapore's DBS is the largest bank in Southeast Asia. Can you clarify for us what it means to be No.1? What are the key metrics you're using?
QA: Right, so the key metric for me is actually what I would call the efficient use of capital or the highest return of capital to the investment
C: You're talking about ROE?
QA: Correct. So for us the 2 key metrics that we focus on are the Return on Asset and Return on Equity. Return on Asset meaning how we book the asset, whether they are of high quality and if they are of low risk weight. Return on equity meaning in terms of the profit we book, are they of high quality profit relative to the equity that the investor has entrusted in us. So efficient use of capital is key, and to drive that what we need to do is manage our cost to income ratio, and the way to drive cost down is actually to leverage more on technology to improve our operations.
C: How much can you drive cost down, from here?
QA: We are actually pretty low, so our strategic objective is to make our cost-income ratio around 35%. That is a very low number both across the region and globally.
C: You talked about the ASEAN economic integration. Any plans for Techcombank to expand outside of Vietnam?
QA: The short answer is, at least not in the next 2 or 3 years but you can never say never. So the reality is once ASEAN is fully integrated then we have to look at cross-border partnerships, and that could be just a hybrid form of a partnership in terms of the joint venture or it could be a full merger so we will have to evaluate that when the time comes.
C: ASEAN integration also means that it brings more competition into the Vietnamese banking system itself. Are you ready for that? How long can you maintain your local competitive edge?
QA: To be honest I would have to say that we aren't ready to take on the biggest and the best across the region now but I think we will be able to in 2 or 3 years' time. So with the new infusion of capital, with the strategy that we have and with the talent pool that we have assembled, now is just a matter of execution, and grinding it out day in and day out.
C: What do you mean by getting ready? Any plans to pursue inorganic growth to get yourself ready, to make yourself bigger in Vietnam?
QA: The short answer is yes, we will look for opportunities basically to position ourselves. So within Vietnam two-thirds of our branches are across Ho Chi Minh City and Hanoi and about a third is spread all around the country to the degree that there are opportunities for what I call value accretive acquisition.
C: What are your criteria?
QA: Well, they have to be low loss, and they have to be similar to us in terms of management and corporate culture which is striving forward and continuing to move forward. I think those are some key criteria and then once we have that and to the degree that both sides see the value creation that can be taken then we will absolutely welcome that.
C: A lot of focus on of course trade flows coming from China, are you worried about all this talk we're hearing about US-China trade tensions?
QA: It's always on the back of everybody's mind, so as of right now we don't see any impact yet. But we do a lot of what I call stress-testing or scenario planning to understand which sectors of the economy will be more affected and which will be less so. And then insofar as we are concerned, we need to have a closer dialogue with our clients and their partners to understand whether any of those things will affect them directly and the degree to which it affects them and we will have to come up with a plan to help them navigate through those complexities, so it's still a big unknown but at the same time we are proactively probing and understanding the situation.
C: So I hear you're both marathon fanatics, you call yourself the chief fitness officer, CFO?
Bang Trinh: Yes, I do. What QA doesn't realize is when he hired me as CFO I thought the role was Chief Fitness Officer, but he said Chief Financial Officer and somehow we've managed to align the 2. But as an organization I think it's actually great. We're a sponsor of the Techcombank Ho Chi Minh City International Marathon and the Ironman, both activities which I'm very passionate about. A lot of it is helping not only the community understand what it's like to be healthier and more active but also helping the organization and the young people within overcome challenges and understand the journey to getting to the finish line. QA likes to say to run faster you usually run by yourself, but to run further you've got to run together, and my goal is always that we're going to help everyone run further and faster together.
C: So you guys run together in marathons?
QA: 30 of us were at the Ho Chi Minh City Marathon and Bang was at the finish line so he was waiting for me and waiting for me and waiting for me and I didn't finish.
C: You didn't show up?
QA: Well actually, I didn't finish until like 6 hours and 20+ minutes later, but actually the nice thing with the marathon is that it's not about how fast you are but about everyone who started with you finishing. So there were 6 top executives at Techcombank who signed up and ran and every single 1 of them crossed the finish line
B: And so I saw, I actually told his wife at the finish line, I bet you he's just running and waiting for his team and sure enough right after that comment we saw a whole group of Techcombank employees led by their CEO across the finish line. It was a great ending.
C: So you weren't worried that you lost him for a sec?
B: I was a little worried. I had not joined the bank at the time but everybody was there and it turned out to be OK.
C: So Bang let me get this straight. You actually beat the CEO when it comes to Marathon? Is he giving you harder targets to meet as a result? Is he punishing you?
B: It wasn't a good career decision, haha. But he instils a competitive nature in all of us, so you know you got to push harder but then as you said the targets will be higher and harder and faster but that's in our DNA so that's still fun.
C: So Bang, you're the CFO. What's it like working with QA gearing up to list Techcombank?
B: I have to say it's actually been a lot of fun. Before I came to work with QA as a CFO, he was actually a client of mine
C: Really?
B: Yes, so we had a chance to actually spend some time together and get to know each other through an insurance deal that the bank did right before I joined with Manulife. So along the way QA said one day, "Hey, you should come on and join me as CFO."
QA: 18 months
B: Yeah, well I played hard to get
C: So wait a minute, he actually courted you to jump ship and work for him as his CFO?
B: He did, he did
QA: For 18 months straight
C: Did you play hard to get?
B: Absolutely. I told QA that what he was doing was very exciting but I was very happy to stay where I was and support him but he was relentless as QA is and eventually I capitulated
C: You finally got yourself a CFO?
QA: Absolutely, you'll remember, its objective driven and its goal driven. So I needed someone who can actually articulate the vision and have credibility with the market and also work with the internal team. The internal team really loved him so I kept telling him, "Hey you've got to come and work from the inside, drive the revolution," so it worked out very well.
C: I love this bromance, I really love this bromance. So as CFO and CEO, now that your job is complete listing Techcombank, what's your next priority?
B: Well, QA likes to speak in sports analogies, so we talk a lot about how this is a marathon, not a sprint, there's a lot we can do given the inflection point in the economy, it's an extremely exciting time in the Vietnamese economy and the banking industry itself is very young so there's just so much growth that's happening. So for us as we lay out the vision and execute on the vision that QA's laid out it's just literally going from milestone to milestone in terms of execution.
C: You giving him new targets?
QA: All the time and it's getting harder and harder every day. On the flight here this morning we were talking about asset and liability management and how to make sure that the deposit keeps going in. It's an uphill climb I think to the point, where to use a sport analogy, it's like climbing the hill. You don't ever want to break the momentum and it gets harder as you climb higher but then you keep on powering up
C: So both of you are Vietnamese, you spent many years working overseas, was it national service that made you guys come back to work for Techcombank?
B: Well I've been back in Vietnam a little bit longer than QA. I've been back for about 10 years in Vietnam, and what attracted me back was the opportunity to create an impact and share my knowledge and experience at a time when the country was in a lot of need of people with experience. So it's not so much National Service but a sense of pride and a chance to give back, that's what really attracted me to come back
C: Was it national service for you?
QA: Yeah, to a large degree but I also want to share, similar to what Bang said I learn and work a lot, and what I do see is that there's a lot of young people eager for the experience and they really want to learn. So what I can provide is a little bit of experience. A little bit of grey hair goes a long way and what I really love is the fact that people really love to learn so my experience and learning that I bring to the team helps them go a long way, I think that is the key. Just like Bang said, it's an impact and just a little bit to spur the creativity, spur a little bit of inspiration and then they themselves will take it wherever that they want to
C: You know many Vietnamese banks have hired foreign CEOs in the past. Is there a shortage of leadership in Vietnam right now behind this trend?
QA: Actually the banking industry in Vietnam is very, very young. So Techcombank itself is 25 years old, and if you think about it, for people to be a CEO they have to be like 40+ to 50 and have to have at least 20 years of banking experience. So if you have 20 years of banking experience then you've got to be starting out as 5 in Vietnam. So there's not that many and I think that is the difficult part. But I think over the next generation for the next 10 years I will see an explosion of talent and growth from the country as well. Like I mentioned earlier my goal is that 5 years or 10 years from now we will have another 5 or 6 CEOs that started from Techcombank and have become CEOs at other banks.
C: But many of these foreign CEOs don't end up staying for very long. Why is that?
QA: So a lot of the time the labor contract for CEOs last about 3 years or so, and after that people either have family commitments or other opportunities so they move on. So a lot of the time it is much more about the contractual nature rather than the opportunity.
C: Ok so both of you are Vietnamese, as part of the core leadership team now at Techcombank does that mean that both of you are now here to stay for the long haul?
QA: That's our game plan
B: That is the game plan. So, I was going to say, to add to what QA said earlier and your question Christine, there's not a lot of experienced bankers that understand what the outcome should look like, so being able to bring back developed market outcomes and understanding what the outcomes look like, that's something that we're sharing within the organization. So for us in many ways at this stage in our careers it's more about making an impact and sharing the experience with the next generation, helping as QA said, mint that next generation of bankers, making leaders in the market and certainly those that come up through the ranks in Vietnam or are Vietnamese are more likely to stay and have that same commitment whether it's national service or just an opportunity to create an impact on that scale. For us in many ways I see it as a privilege, an honor and a responsibility to do this and so it's incredibly exciting.
C: So you guys are here to stay for the long haul?
QA: Absolutely
B: I absolutely will be staying in the long haul
QA: Yep, we'll be here
ENDS
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