Asia Risk Awards 2020
While countries struggle globally with how to reboot their economies from the impact of the coronavirus, Vietnam is dealing with the less arduous task of managing slower-than-expected growth.
According to the World Bank, the South-east Asian country is due to post growth figures of 2.8% for 2020, potentially increasing to as much as 6.8% in 2021. Techcombank’s figures are even more impressive, with the bank reporting an increase in profit before tax of 31.5% for 2019 – a key driver of which is the success of its subsidiary, Techcom Securities.
While Techcombank may be the third largest bank in Vietnam, its securities arm dominates trading, holding a 95% market share of listed bonds on the country’s two exchanges. And it is this prime position, according to Phan Thanh Son, deputy head of global transaction services at Techcombank, that enables the firm to first spot and then benefit from emerging trends in the Vietnam derivatives market, and to retain its house of the year award.
“In terms of market development we saw two significant trends over the last 12 months. From a domestic perspective, it was local corporates in Vietnam who would like to access either the offshore equity, or financing market, to tap into low dollar funding rates and would then like to swap their structures into local currency to reduce forex risk,” says Son.
“International investors have been attracted to Vietnam’s markets and they would like to explore asset swaps to give them exposure locally. Techcombank is leading the development in terms of engaging global fund managers on this front.”
Phan Thanh Son, Techcombank
According to Son, the driver of this activity is mostly macro, as the bank is seeing Asian asset managers, particularly real money players, get involved in the Vietnam market.
International investors have been attracted to Vietnam’s markets and they would like to explore asset swaps to give them exposure locally
Phan Thanh Son, Techcombank
“They are exploring ideas such as corporate repo combined with an asset swap overlay, to give them a yield on their dong credit exposure,” he says. In a sign of increasing investor confidence in the Vietnam market, Son says real money players are typically comfortable with the forex risk and, in fact, they believe the dong might appreciate.
Vietnam may have escaped the worst economic impact of the coronavirus pandemic, but it still required some form of stimulus. In March, the State Bank of Vietnam cut its refinancing rate from 6% to 5%, while simultaneously bringing the repo rate down to 6%. Son says the fact that the fall in domestic rates happened at the same time as a decline is US dollar rates was of strong interest to corporates wanting to use the low-rate environment to lock in their financing requirements.
Son says a number of domestic players are looking to replicate Techcombank’s success in the domestic derivatives markets, but adds that the firm is still the leading franchise in terms of offering liquidity and tenor in dong-denominated derivatives.
Given the nascent stage of the Vietnam local currency derivatives market, liquidity is not sufficient to support demand of a very large size, Son says – but Techcombank is still able to price dollar-dong transactions up to $500 notional.
“We are also the only Vietnam bank that can cope with a basis swap up to five years in floating dollar versus floating Vietnam dong,” he adds.
The lender is also leading the way in terms of developing trading and client risk management standards in Vietnam, becoming the first local bank to establish pre-settlement exposure standards, which it now has in place for all clients so it can monitor counterparty risk in an effective manner.
A critical element of any developed derivatives market is being able to create a reliable fixing. Over the last 12 months Techcombank has been able to cooperate with the Vietnam Bond Market Association to create and enhance Vietnam’s Interbank Offer Rate. As a result of the firm’s work the market now has a repo fixing from two weeks out to six months. According to Son, however, it is not any one element that stands out as a success. Rather it is the accumulation of a number of efforts that have seen the bank retain its position.
“The key highlight from our case studies was not an individual transaction but instead the way we built our leading capacity in a few key areas, such the ability to advise and work with the client to understand their funding needs and understand their exposure,” says Son.
“Given the quickly developing and complex markets, it is critical to focus on helping clients to uncover their financial needs, as well as on bringing added-value in terms of our expertise from across the whole team. The ultimate objective is making sure we deeply understand the clients’ transaction needs in order to consult them on implementing the right solutions.”
@ Risk