Good afternoon, and welcome to the Techcombank third quarter 2024 financial results presentation. As this event is being broadcast, we would like to remind those of you in the live audience to please put your mobile devices on silent. Jens Lottner, CEO, will begin with opening remarks, and Alex Macaire, CFO, will share more details of the financial results and business updates, followed by a question and answers period. Jens and Alex will present in English with live Vietnamese translation available via a separate link. As usual, there will be another call in Vietnamese tomorrow for retail investors. Today's presentation and Q&A will last about 90 minutes. With that, I'll turn it over to Jens to begin the presentation.
Good afternoon, everyone, and thanks for joining and really appreciate it. Third quarter was, like expected and what we had shared beforehand, an overall a very, very strong performance. Overall, TOI year-on-year increased at around 30%. It was driven by NII as well as NFI and PBT year-on-year up 34%. And again, we continue on the current momentum as we keep our costs under control and OpEx as well as provision. And we see actually that the top line growth is also manifesting itself in the bottom line. Return on assets stand at 2.6%, which is roughly where we were also last quarter. And CASA is still at a very high level of 40.5%, so above the 40.
Again, I think we're seeing that despite some increases in the overall market of the interest rates, we kept our cost of funds very much under control, which has then also supported NII growth. NPLs are a little bit higher, but pretty much in line, or in line with the guidance we had given beforehand, and not much elevated before and/or compared to the second quarter. Capital has actually improved despite the fact that we paid dividends, and so it stands at 15.1%, still one of the highest in the industry, which has also to do with a lot of our RWA and RWA optimization, which we did in the last quarter and the quarters prior.
So overall, again, we feel actually that we are on a very, very good track, and that the economy is actually doing quite okay, so we should also be looking at a relatively strong finish towards the year-end. So, with that, let me hand it over to Alex, who will go, as usual, into a little bit more details of the numbers.
... Thank you, Jens. Good afternoon, everyone, and we'll start as usual with an overview of the macroeconomic environment. So, as you can see, there has been an improving trend across a number of metrics. So, Vietnam posted a GDP growth of 7.4% for the third quarter, which is up from 7.1% in the previous quarter. Domestic sales, FDI, exports maintained the momentum on the back of the attraction of Vietnam within the China Plus One strategy. The economy is also benefiting from a lower U.S. dollar rate , which is giving more headroom to the central bank to inject liquidity.
More generally, we also know that low U.S. dollar rates is positive for emerging markets and frontier markets, and for this reason, we expect the supportive environment to continue into twenty twenty-five. Looking now at the banking sector, you can see that there has been quite a healthy credit growth in the banking system, plus 8.5% year to date at the end of September, so we are a little bit above the trend in twenty twenty-three. As I mentioned, the central bank has started to inject liquidity again into the banking system, and this translate into a stabilization of the CASA ratio and term deposit rates.
Looking at interbank rates, which are usually a leading indicator for funding tensions in the banking sector, you can see that interbank rates have gone down, which is also a positive sign. In this context, we have revised a bit our anticipation for interest rates. We now expect term deposit rates to increase only by a moderate 20 basis points for the fourth quarter, and we even expect interest rates to go down actually next year by potentially up to minus 30 basis points. We'll look now at our financial results.
So, Jens mentioned it, a very strong quarter indeed, in the sense that the bank performed above our internal expectations at the management, and it showed also improvement across a number of metrics, including on the risk side. NII growth slowed down a bit, as we anticipated and guided, but it still progressed by close to 22.8% for the first nine months of the year. As we explained in the last earnings calls, a key driver is the continued slow activity on the real estate side in the South, which is constraining the amount of interest we can charge on some parts of our credit books.
However, our NIM remained quite resilient this quarter at 4.3% on the last twelve months basis, and 4.1% if we focus on the third quarter only. On a medium-term basis, we hope to be able to keep the NIM above 4%. The last twelve months NIM above 4%, even though there might be some temporary fluctuations from time to time below this mark. So, our PBT grew 33.5% with an impressive cost-income ratio of 28.4%. NPL improved to 1.35%, and our CASA ratio remained very resilient, above 40.5%, if we include the saving component within our Auto-Earning accounts. And finally, our capital adequacy ratio also improved significantly to 15.1%.
This is an overview of our PNL, so VND 7.2 trillion PBT in the third quarter, which is a bit below the level of the first two quarters of the year for the reasons we guided previously, but it's still an impressive level of profitability, as reflected in the rapid improvement of our capital adequacy ratio during the quarter, so NII recoveries both increased more than 20% versus 2023. OpEx was well controlled, and provisions, provision expenses actually started to decrease quarter on quarter. NFI was a bit soft, and we will come back to this later, but overall, our cumulative PBT for the first nine months of the year stood at VND 22.8 trillion, which is as much as what we generated in the entire year 2023.
So we are in a good position to achieve our full-year target, despite the one-off impact coming from the termination of our exclusive distribution agreement with Manulife. Let's look now at our NII. So, we continued, as you've seen, to grow our balance sheet at an accelerated pace. The increase in interest on earning asset reached 24% year on year at the end of the third quarter. We grew our deposit at a similar pace of 21% year on year, and the expansion of our CASA was even faster at plus 46% year on year.
So this growth reflects the success also of our Auto-Earning proposition, which provides customer with an exclusive combination of current account flexibility and a high level of returns. On rates, we are seeing a continuation of the trend we explained and commented on in the previous quarter. Asset yields, in particular, continued to decrease. So this is essentially due to the adjustment of our flexible pricing policy in order to deal with the consequence of the slow real estate activity in the South. And as you know, the objective is essentially to proactively adjust the amount of interest we charge on our portfolios in order to maintain their credit health.
Looking now at our lending balances in more details, I think the key point is that, like, in the previous quarter, we continued to make progress on diversification, sector diversification in particular. As you can see, retail loans increased 6% quarter on quarter, whereas our corporate exposure, so including loans plus bonds, increased only 3%. The chart on the right-hand side shows also that we have continued to shorten the duration of our assets, and the reason for doing that is to give us more flexibility in a context where interest rates stay very low in the market and where the cost of risk is not properly priced in, in our view. This is another slide on credit exposure. The key takeaway is, again, the continued progress made this quarter in terms of diversification.
You can see that our real estate exposure stayed flat quarter on quarter, and then on the right hand side, you can see that within retail loans, actually, you have a category of margin loans, equity loans, loans to micro SME customers, which is progressing also very fast and is already in combination starting to represent close to 16% of our overall retail exposure. So I would like to reiterate the fact that credit diversification is the key objective of the management of Techcombank for 2024. I think it's clear that we have already made some noticeable progress in the last two quarters, but we also expect to be able to report faster improvement in the last quarter of the year. Looking now at the real estate value chain, as usual, in a bit more details.
As you can see on the right-hand side, the level of disbursements this quarter remained at an elevated level. However, the recovery remains a bit patchy. We have very strong activity in the North, which is driving the overall market, and at the same time, the South is still a bit quiet. The reason for that is that our customers have opportunities for short-term capital gains in the North, and which actually drives more and more of the demand toward the North.
At the same time, as we mentioned, we can obviously expect some rebalancing at some point, if only because there is significant price catch-up, as you can see, at the bottom of the slide, between the North and the South, and therefore, at some point, the South will appear a lot more attractive as an opportunity, and we are already seeing some encouraging trend in this respect, so therefore, we hope the next quarter to be able to report on a more buoyant activity in the South, which will be also a favorable factor for our flexible pricing policy.
You can also see that the efforts made by the bank to contain prepayments have been quite effective, and as a result of that, prepayment volumes have come down quite a bit this quarter, allowing us to increase our mortgage balances by VND 12 trillion during the third quarter. Now, a quick focus on deposits. As I mentioned, our CASA balances grew 46% year-on-year, thanks particular to very strong momentum from our new auto-earning proposition. CASA ratio stood at 40.5% at the end of September 2024, which is a very high ratio indeed, in the context of the industry. Consistent with the guidance we provided in the last earnings call, the average deposit yield increased a bit this quarter by around thirty basis points, reaching 2.8%.
However, if you compared to the average of the banking sector, and even with our peers, you will see that it's still a very moderate level. And going forward, we expect any increase to remain also relatively low in the range of 10-20 basis points, maybe. Let's look now at our fee income. So, this was an area of softness this quarter. Our fee income contracted a bit to VND 2.5 trillion. However, for the first nine months of the year, net fee income was still up 17% on year-on-year. The quarter-on-quarter reduction can be attributed to several factors. First, we had a very strong second quarter of the year, particularly for investment banking fees.
And then beyond that, Q3 was marked by a significant regulatory change, which impacted a category of letters of credit with invoice financing called UPAS LC. And UPAS LC was significant contributor to fees for LC cash and settlement. And then beyond that, on banca, we also had the impact of a change in distribution strategy. As you know, our exclusive distribution agreement with Manulife concluded on the seventh of October, twenty twenty-four. The result of that, we will pay compensation to Manulife of VND 1.8 trillion, which was determined by reference to a formula which was in the original distribution agreement. And this amount will be booked as operational expenses during the fourth quarter.
We still remain confident, even with this one-off impact, that we will be able to achieve our PBT target of VND 27.1 trillion for 2024, as was communicated to the general meeting of shareholders. Looking forward, the termination of this distribution agreement gives us the opportunity to redefine our strategic approach to the bancassurance business, and we hope to be able to share some interesting developments in the coming quarters. Turning now to OpEx. As I mentioned, our cost-income ratio remained below 30%, actually precisely 28.4%, which is extremely low in the context both of the market and also in comparison to our target range. The year-over-year OpEx increased 10%, with a very moderate increase in staff costs of 4% only.
Our headcount stayed broadly stable at ten thousand, seven hundred, and in the fourth quarter, we expect that, it will start increasing again as, we invest in our frontline capacities. Otherwise, the main areas of cost increase continue to stay aligned with our investment priorities. So during the last three years, we added around VND 5 trillion of technology assets on our balance sheet, which are progressively, amortized, and this explained the significant increase in, property and equipment cost, plus 30% year-on-year. As you can see, we have also significantly increased, our investment into marketing, which is up, 17% for the first nine months of 2024. So overall, it's fair to say that the bank is operating at a very high level of, operational efficiency, as reflected in the, again, the very low cost-income ratio.
We want to use this as our advantage by continuing to invest heavily into the areas which are important for our future growth and our future market share expansion. Therefore, you can expect over the coming quarter that costs will continue to grow at an elevated pace, at least, provided our cost-income ratio remains in our target range of 30%-35%. Let's look now at asset quality. In a nutshell, most metrics remain essentially stable or improved. Our credit cost went down this quarter to VND 1.1 trillion and stood at 0.9% of our credit asset balances, which is roughly equivalent to zero to yeah, to 0.9% after recoveries.
NPL stayed broadly stable at 1.35%, and coverage ratio improved slightly to 103%. All this, I think, is positive and aligned to our previous guidance. These slides provide some more details on the quarter-on-quarter variance of our credit costs and troubled asset balances, so special mention loans edged up only slightly this quarter at VND 5.2 trillion. However, the important point to note is that the increase was entirely driven by impact from credit bureau, as the organic Bucket 2 balances actually reduced during the quarter, so this reflects successful workout of our delinquent exposure, as well as a slower Bucket 2 formation in the quarter.
New NPL formation and loan subgrades stayed broadly stable during Q3, and therefore, the increase in NPL balances that you can see on the bottom right-hand side of the chart is actually entirely driven by the fact that we had a lower amount of write-offs this quarter, so in short, the performance of our loan books remains very strong and actually stable or improved slightly during the quarter, so these slides complement the view of our credit books' health. As you can see, our loan-to-value and interest receivables over interest-earning assets both stayed broadly stable during the quarter.
We had more assets, yielding 8%, or less, and this is actually in line with the lower interest rates and the market dynamic, where we can see some very aggressive pricing from a number of banks. For example, all new mortgages now fall within this bucket. The average yield in the lower interest rate bucket also went down a bit during the third quarter, and this is a consequence of the adjustment in our flexible pricing policy, as I already noted. Turning now to capital and liquidity. So despite the rapid growth of our credit books during the third quarter, our capital adequacy ratio strengthened significantly to 15.1%.
This obviously reflects the strong, the very strong profit generation capacity of the bank, as well as the benefit of our asset diversification strategy, which translates into lower risk-weighted assets. On liquidity, funding from customers further improved and represented at the end of the third quarter around 75.5% of our total funding. Finally, a glimpse into how our performance compares to peers. Overall, we continue to outperform the market across all metrics. We will turn now to forward-looking guidance, starting with the economy. As you can see, we have revised our GDP growth forecast for 2024 to 6.8%, based on the strong set of results published by the Vietnamese government for Q3.
We expect a number of supporting factors in the coming quarters, such as, an acceleration in public investment, the recovery in domestic consumption, and continued, inflows of FDIs as part of the China Plus One strategy. Looking at, what it means, from a PBT, point of view, and also from a KPI point of view. So credit growth, would be above where it is now, which is 17.4%, and will be, in any case, in line with the quota. For the time being, the quota is 18.6%, roughly, but, we expect to receive more in the coming weeks. Cost of funds, should, remain below 3.5%, and therefore, will show a significant improvement when compared to, full year 2023.
Our CASA ratio, we believe, has potential to continue to grow, particularly on the back of several banking initiatives, such as Auto-Earning. Net interest margin should be also slightly better than its 2023 level, so that means above 4%. NII growth should remain very dynamic, above 20%. NFI, so we expect, as I mentioned in the previous quarter, some moderation in the growth of our NFI in the second half of the year, for the reasons I mentioned earlier, change in the regulatory environment for UPAS LC, and also the impact on our bancassurance business from the change in our distribution strategy. However, we will still target double-digit growth, and therefore, growth in excess of what was observed in 2023.
Our capital, our cost-income ratio should remain in the 30-35% range. Our NPL ratio should also be broadly in line with 2023, so let's say 1.2%-1.3%. Our credit costs should also be a little bit above maybe 2023, but below 0.9% and below 1% in our base scenario for 2024. In a nutshell, it was another strong quarter for Techcombank, aligned to our previous guidance, and actually a bit better than what we forecasted internally. We saw some NIM compressions from for the reasons we discussed in the previous earnings call.
However, at the same time, we continued to make significant market share gains in terms of assets, in terms of CASA, and in terms of profit materiality, and we maintained a very high level of operational and capital efficiency, as reflected in our very low cost-income ratio and the rapid improvement in our capital adequacy ratio. Importantly, we also laid the foundation for exciting strategic developments, particularly in relation to our banca ecosystem strategy. More on this in the coming quarters. This brings my presentation to a close. We will now turn to the questions and answers. Thank you.
Thank you, Alex. We begin the Q&A session. The first question is regarding bancassurance for Vietnam. Recently, Techcombank and Manulife announced discontinuation of the exclusive distribution agreement. Techcombank also announced to set up the Techcom Non-Life Insurance Company . Could you discuss the reason behind the discontinuation? Has Techcombank's strategy for bancassurance changed for life and non-life, and are you looking for a new strategic partner?
That's a host of questions, so let's go one by one. So, first one is on-
Has our bancassurance strategy changed?
... Sorry, there have been some noise there, and there has been kind of events of misselling. And so, all of that actually has shaken confidence in the market. So, from our perspective, this is really more a glitch than anything else, and we're still seeing a market which is extremely under-penetrated. And so, if you think about who holds an insurance product in this market, it's probably below 10%. If you compare this to countries like Malaysia or Thailand or so, we have numbers which are above 50%, 60%. So again, growth is there. So, from our perspective, it was just a question: how do we make sure that we really participate in the best form in this growth? And that is when we looked into the partnership. So, we had a very, very successful partnership with Manulife.
But then there were changes in the insurance law. There were changes in the term, how the market was actually developing. And when both parties looked at these changed environments, the question was: Are we still completely in alignment, or do we want to follow different strategic directions? And I think at this point in time, we said, "Maybe we want to go slightly different ways." So, we separated, and very amicably, and after ten very, very good years. And so right now, and we're exploring these new opportunities. So, from our perspective, in order to be really successful, we believe we need to be more integrated end-to-end, and we need probably also more. We need to be just much better when it comes to claims and claims experience.
So we really want to be more involved in the end-to-end chain, and that means we probably will be getting more involved in that part, in the manufacturing part, not so much just in the distribution part, and because of that, that's why you saw that we are right now looking on the life side, how exactly do we wanna do that on TCI, and which is the non-life side, and we decided to basically engage with a non-life insurance company, where we're also licensing our name, and we work together with investors, experienced operators, in order to create probably some kind of unique experiences, which is closer to what we have in mind when we think about very, very good bancassurance experiences.
So therefore, from the strategic intent to be very, very good in bancassurance, being the leading bancassurance player, nothing has changed. But indeed, we believe we need deeper involvement in the overall business model, in the overall operating model, and hence some of the decisions we've recently taken. And as Alex said, we'll probably see even more of that over the next couple of quarters. Will we have a new partner? We will look into that, but we still believe that given the experience which others can contribute, probably we'll find some kind of partnership arrangements. But how they exactly will look like, that is probably still open for debate and open for discussion.
Okay, great. Thanks, Jens, and I guess if Alex could address some of the financial impacts.
Yeah. Absolutely. So, as I mentioned, we agreed to pay Manulife a compensation of VND 1.8 trillion for the termination of the exclusive distribution agreement, and this amount was determined based on a formula which existed in the original distribution agreement. The costs will be booked as operational expenses in the bank's fourth quarter accounts. And then, so that will be the main financial impact from the discontinuation of our distribution agreement. And then beyond that, there will also be a period, relatively short, hopefully, where we will not be able to recognize bancassurance fees, waiting for the new interim arrangements to be put in place with regard to the distribution of insurance products.
There will be, therefore, an impact on our fees, bancassurance fees in the fourth quarter. However, we do not expect this to be material from the point of view of the bank. Overall, as I mentioned in the previous part of the presentation, we expect to still be able to deliver the profit guidance we provided to the AGM in April this year.
Thank you, Alex. Next question is for Jens. Could you share your view on the macro-outlook for 2025 for the economy and for banking in particular?
So, overall, as Alex has said, probably, and we go out of 2024 with pretty good momentum. And we expect actually that this momentum will continue in 2025, so we expect the GDP growth probably somewhere to be in the 7% range, and the guidance from the government is 7-7.5%. Again, we will see. There are some kinds of things which are probably beyond the control of even in Vietnam. So especially on a lot of the things we currently saw were driven by exports, especially to the U.S. So, if the U.S. suddenly would start and going more into a mode where tariffs would be increased, et cetera, we might actually get some downside from that.
However, I believe overall, the economy is actually relatively well-balanced also in terms of exports, not just to one country, but ASEAN, Asia, China, and Europe. So from that perspective, I think together with public investments, with the real estate sector coming back, et cetera, I think 7-7.5% is not unachievable. So if that is the base case scenario, then we would expect on the funding side, that funding probably will be kind of roughly at the same level like what we're seeing today. I think there will be more deposits coming in, and there were some very good reasons why deposits didn't grow so much this year, but, and again, we think that should be coming back. We think there will be a very accommodating policy by the central bank to actually help spur growth.
As long as the inflation is not getting out of control, as long as the dollar-dong exchange rate is not getting out of control, we're actually seeing a very, very supportive central bank environment. Therefore, funding should actually be available, and so we don't expect costs to increase. We actually expect maybe a little bit of a moderation. At the same point in time, credit yields will probably still be under pressure. We think right now it's, from our perspective, we probably think it should. It's very hard to see how it can even go further down. But again, we know that there's a lot of competition around. Right now, this year, probably 13-14%.
Next year, if it's a 7-7.5% GDP growth, it would be 14-15% credit growth, which we would be expecting with kind of credit yields probably at this level, maybe a little bit higher. And so therefore, I think the NIM scenario, which we're having right now, will probably exist for a little bit. I don't see so much NIM widening next year. So that would mean as long as we're seeing the credit growth at the current NIM levels, as long as we have OpEx under control, I think the banking industry should actually be in for a relatively solid year, right?
Because, as long as cost is there, under control, NIM is relatively where it is, and 15% growth on the credit side for some of the bigger and better banks, and maybe even higher, we should see that top-line growth should also translate to bottom-line growth. So overall, I think one can be relatively optimistic. As I said, there might always be some unforeseeable circumstances going forward, but again, that's not our base case scenario, which we are currently planning.
Thanks. The next question is for Alex. Alex, as a follow-up to the comments that you made on asset quality, for Bucket 2 and NPL, could you provide a little bit more information, and then the corresponding credit costs?
Yeah, with pleasure. My take on the results that we published for the third quarter is that the bank is on a gradual path of improvement in terms of the health of the credit books. So, if you look, for example, at the total assets, so adding Bucket 2 with NPL, then the ratio has been improving steadily since the second quarter of the year. Looking at the third quarter in particular, you could see that organic Bucket 2 formation was actually improving in this quarter. If you look at NPL, the balances increased a bit, but the ratio again decreased slightly.
So overall, I would say we are still seeing an improving trend, and I would expect this to continue in the coming quarters and probably at the same pace. I would not expect like a radical improvement suddenly in the NPL ratio, as an example. So we are working with customers on solving a few situations in our retail books, particularly for mortgages, primary mortgages, as we discussed in our previous earnings call. And on the corporate side, you can always have some one-off default events, which are very difficult to predict. We had a couple of these events, for example, this quarter, and they can also create from time to time some pressure on the NPL ratio.
So that's why, I would say I'm cautiously optimistic. I think, the worst is probably behind in terms of NPL, and from there, there should be improvement. However, the improvement will be gradual and could also entail some temporary fluctuation due to unforeseeable credit events, particularly in our corporate books.
Thanks. The next question is also for Alex. Could you provide some updates?
... Yeah. Yeah, so, as I mentioned, during my presentation, first, our corporate exposure, so including both loans and bonds, increased only 3% quarter on quarter, when retail exposure increased faster at plus 6% quarter on quarter. So, this is, as you know, in line with our strategy of diversification, where we want to move more of our credit assets to the retail banks, where risk-weighted assets are lower and where we have the potential as well for more credit diversification. And then beyond that, within our corporate loans, you can see that the proportion of real estate asset has gone down, because actually we have kept the balances essentially flat quarter on quarter.
As I mentioned also during my presentation, even though there's been already some, I would say, relatively noticeable progress made in terms of diversification, we hope to be able to accelerate that in the fourth quarter of the year. Our objective for twenty twenty-five will also remain largely aligned to the strategy we have followed in twenty twenty-four.
Thanks. The next question is for Jens. Could you comment on how you see the progress of the Auto-Earning program and its impact on the bank's CASA ratio? And where do you see CASA as you head into 2025?
Yeah, thanks for the question. Overall, Auto-Earning is actually exactly how should I say? Performing as expected. We had very clear assumptions what would happen. And so in terms of the overall development, and right now you're seeing we are roughly at a balance of 20 trillion VND in this type of account. And I think when I look back into our original plan, I think we wanted to be at 21. And so this is roughly where we want to be. We have more than 1 million customers who have activated that feature. And what we would still like to see more is normal CASA, and where people are coming in. So in terms of new-to-bank acquisition, we would like it to be an even stronger proposition so that we get more money in.
However, even if I take a look at total assets under management, which have been flowing in from customers who activated that feature, with growing term deposits or bonds or bond funds, and we still actually see that this is working very well. So, and from that perspective, I think it does what it, we wanted it to do. And if you also look into our cost of funds, that, despite the increase in the term deposit rates by depends 30-40 basis points since May this year, you see that our cost of funds actually have only moved by 20 basis points. So again, I think it is showing that this cost of funding advantage, and through that product, is actually working. So again, we don't want to rest here.
We are still having the 50%-55% ratio, and we will see ultimately what is happening, especially until the end of the year, because usually at the end of the year, there's a huge increase in terms of CASA. So, we will then see how are we looking for the total of the year. The fact also that CASA is not going up. You saw that our overall year-to-date credit growth is 17.8%. Deposits in the market are not growing very fast, so in order to make sure that we keep our ADR ratios, we also needed to accelerate term deposits and just making sure that we really had the right funding as we grew the credit book quite aggressively.
Therefore, CASA takes actually more time, hence you will probably see that the CASA ratio will increase as credit growth will slow down a little bit. Because in that case, again, we will start replacing term deposits with the cheaper CASA balances as these CASA balances start building up. Again, we are still looking very much into higher numbers and going forward. We have not given up on the 50/55%. There's very clearly this year a very underwhelming growth in overall deposits compared to what we've seen in markets or in years prior. Again, we expect also this to be different next year.
So, I don't know exactly what the numbers will look like. We are currently in the planning process, but clearly, we take the 40% right now as the basis, and then from there, we're looking on how we can actually increase it even further. But as I said, there should actually be a lot of room for further improvement.
Thanks. The next question is for Alex, and this is regarding NIM guidance for the fourth quarter and into 2025 . In the last analyst presentation, management provided sub 4% NIM for the second half of the year. In light of the reported third quarter NIM, should we model NIM to go higher in the fourth quarter, and thus the full year? And how about the NIM prospects for fiscal twenty twenty-five?
Yeah, and thank you for this opportunity to comment again a bit on the NIM. So, first, yes, I think it is entirely correct that the NIM in the third quarter was a bit higher than what we guided. I hope it's a positive surprise. And that's the reason why I mentioned that actually the bank performed a little bit better in the third quarter than our internal expectation.
That said, as you've seen, well, there's still been some quarter-on-quarter compression for the reasons we mentioned in the previous earnings call, which have to do with the flexible pricing policy, as well as the impact of the higher rates, particularly on TD, which progressively translates to our overall book of deposits as they go through maturities and replacements. So that's why, if you ask me for the fourth quarter NIM, I would not expect an improvement compared to the third quarter.
I think the pressure on asset yields, and Jens mentioned it, is still there, will remain there probably as long as the competitive dynamics remain what it is, where a number of banks are actually chasing the same customers and trying to grow their asset books. And then, at the same time, we also expect, as I mentioned, some further increase, probably in the average deposit yields, maybe up to 10 or 20 basis points. And again, this is purely mechanical and linked to the progressive replacement of the term deposits at the maturity. So, for that reasons, we are only guiding at this stage that NIM for the full year 2024 should be above 4%.
When it comes to 2025, I think I could only repeat what Jens said. So the environment next year would be relatively supportive, right? Because of the lower interest rates, which will allow the central banks to inject more liquidity in the banking system. For that, as long as the inflation obviously remains under control, therefore, we expect term deposit rates to go down, maybe in the range of 10 to 30 basis points, and this should allow us to keep also our NIM on a last 12 months basis above 4%. So therefore, the goals in going forward above that level will come from us for us from growing NFIs, growing CASA, and hopefully also taking our cost of funds further down.
Thanks. A follow-up for Alex on interest receivables. Interest receivables were up in the third quarter and is 40% higher in absolute terms versus the balance at the beginning of the year. Could you share some insights into this line item, and is this level due to allowing deferred interest payments?
Yeah, with pleasure. So, basically, this is an indicator that we manage at an aggregated level, right? Because a multitude of factor which would influence this ratio of interest receivables over interest earning assets. For example, if you change the interest reset period on your loans, if you increase it from one month to three months, or reduce it from three months to one month, it immediately has an impact on the amount of interest you have to accrue in your balance sheet, and therefore, it has an immediate impact on the ratio. So that's why we monitor and manage the ratio at a macro level.
It currently stands, as you can see, at 1.6%, and if you do and calculate the average over the 2017 to 2022 period, then the average was also 1.6%. Therefore, the current situation is not out of line, with, what we saw in the past. The bank has always managed, this ratio in the same range.
Thanks. The next question is for Jens. Could you provide an update on the progress on the data and digital front in the recent quarters?
Sure. On the, let's say, digital front, and probably the biggest change we've seen on this quarter has been that we moved our mobile app to the cloud, and I think we are probably one of the first... Or we're definitely the first one in Vietnam who have done that. But even for big banks like ourselves, and when I mean big banks, big transaction banks like ourselves, moving this to the cloud is usually not what a lot of banks have done, and so a lot of this stays still on-prem. So we have moved it to the cloud, which should give us the ability to scale.
Just to give you an idea, and so right now, the peak we had ever and was actually on Independence Day, and so we processed roughly nine million transactions on this very day. And if you look then to Tet, Tet usually is 20%-30% higher than Independence Day, so you would need to be ready to process around twelve million transactions at this point in time, assuming you still have the same market share. At the same point in time. Because we are relatively reliable on transaction, on safety and ease of transaction, we have seen that in the last quarter, depending on what you're measuring your market share in terms of incoming, outgoing transfers, QR payments, whatever, we gained between 0.2% to 2% market share in different parts.
So you would say the 12 million transactions can, depending on that increase in market share, can even go higher. So in the past, if you would have had this all on our normal infrastructure, we would probably have struggled, and then customers would have experienced that during these peak days. So right now, we feel very, very comfortable that we can actually start processing these things on very, very easily. Which again is good for the customer, but as I said, will also start manifesting itself in additional market share. So I think that probably is one of the biggest things we've done quite recently on the technology side. When it comes to data, and I still make the same point, so we are storing right now around 5 billion data points per day.
But what we are right now doing is we are actually using, because it's not because everyone is talking about it, but because it really becomes meaningful. So, we're using a lot of Gen AI applications right now and trying to understand what we can actually do with Gen AI. And, because of a lot of the investments we've made over the last three years, and we now have the ability to actually harness this Gen AI applications and a lot of new developments, and very, very easily. So, we did kind of POCs on proof of concepts on supporting our RMs with automated scripts when they see customers. We are generating right now kind of on our digital marketing side AI-generated marketing collaterals. And all of this is happening, and really as tests.
These tests we can do in around two to four weeks, but then, and right now it actually gets into scaling. And because all of our systems have been built, they can easily go from kind of piloting to prototyping to deployment. You will actually see that, and probably you will not see it, but our, in the background, and our staff is actually seeing tremendously improved productivity. Another area, again, just looking at Gen AI, we're using this right now for coding and helping the productivity of our developers. And up to now, we're seeing around 30%-40% productivity improvement.
So that means if right now we have around 1,200 developers, people in IT, we would need to basically if we want to do and grow at the current level, and we might have hired, I don't know, 300, 400 more people. We will probably don't need to do that because these productivity improvements are actually allowing us to increase the productivity. That's why what you've seen in the past that we actually had relatively stable headcounts and despite actually having more and more customers doing more and more things. So, a lot of these Gen AI capabilities right now can be deployed because of the investments we've made in the past. So that's probably the biggest areas we have right now.
One is pushing on the payment side, making sure that we become more and more relevant on that side. And then the other one is that we're really using data, not just for the normal things which we're using, but actually also for a lot of really advanced technology like Gen AI.
Thanks, Jens. Next question is for Alex: Could you share your views on the real estate market outlook for the rest of the year and into next year? And if the real estate market recovers, would Techcombank's performance be more impacted than the rest of the industry?
Yeah. Thanks for the question. So, as I mentioned, first, we are already seeing significant recovery in the real estate market, as reflected, for example, in the strong momentum for new mortgage disbursement. The problem is more the fact that this recovery is not equally distributed across Vietnam and across the various compartments of the market. So, the question is, therefore, whether at what point will we see a recovery, particularly of the activity in the South. The very positive factor for me is the fact that we are seeing now a catch-up between the real estate prices in the North and the South.
More and more, they are more and more converging, which means that going forward, the South market will start looking comparatively a lot more attractive, and this should also increase the fluidity and the momentum in the South. If you ask me now about the impact that it might have on the banking sector, first, a recovery or an expansion in the real estate sector is, in general, very good for the economy. It has an impact by itself and of itself on the GDP growth.
And then beyond that, it also translates into a wealth effect, by which households suddenly see an increase in the value of their home, and therefore feel that they are wealthier, richer, and can afford to spend more, which is good for domestic consumption and good for the economy. So it will be clearly one important factor to support the achievement of the 7% to 7.5% GDP growth target of the government. And then beyond that, for the banking sector, you can expect this as well to be a significant factor of improvement, and for Techcombank even more so given our exposure to real estate market in general.
So this should reflect in lower cost of risk, and so shorter period for the completion of real estate projects, and also more mortgage activity, which should also translate into increased diversification of our credit books. So that's an overview of the impacts and factors you can expect from the situation in the real estate market, if it continues to improve.
Thanks, Alex. Next question is for Jens. Could you give an update and share some insights on the policy to expand in the South? And how you would compete with some of the other banks there.
Sure. I think the logic why you would focus more on the South is probably relatively self-explanatory, because it's actually the largest. The South is a larger GDP contributor than the North, and then a lot of the FDIs are basically flowing into the South. So, if you look into the numbers, probably in 10 years, the South will be even larger than the GDP of Malaysia. So, you just have just in one part of in Vietnam an economy, which in itself is what Malaysia is as of today. So, for us, not being in that market or not being meaningfully in that market is just kind of a wasted opportunity.
The reason we didn't do it so much is, A, because we had a lot of things to do in the North. And of course, there's a credit quota, as you can always ask yourself, where are you deploying that credit quota? And so therefore, we didn't feel that need to go down there. And then last years, it was also a question of how much infrastructure are you willing to provide and to add. And all of that probably has changed a little bit. I think the credit quota, to a certain extent, we see some kind of loosening, and even this year already, we see a little bit of a different stance.
But then the other one is also the way to reach out there is not just that you need to put big and heavy physical infrastructure in, but with your digital outreach, your tools, and et cetera, you can actually be much more efficient. And therefore, from our perspective, I think now the time is right to really go in there. And in our current process, we think about how we can allocate more resources to the South. And as I said, I mean, in some of these areas, really it is... I wouldn't say it's for us, for the taking, but we have never been really active down there.
And I still believe that our value propositions, which we're having, our solutions and all of this, would actually be as competitive as they are in the North. Otherwise, you would not see the numbers and we are showing. So it is much more presenting the customers there with the option to bank with us than doing something completely radically new. So. And I think that's what we're doing right now. Of course, there are certain things which are different. And in the South, there is a different kind of mentality, investment mentality, risk preferences, et cetera, so that we need to cater for. But again, I think our products are strong enough, our people are strong enough, our systems clearly are strong enough.
So, for us, it's more like really getting our head around and being dedicated and really turning up for business. So, from that perspective, again, I think especially if there should be maybe even more relaxation on the credit side, on the quota side, we should actually see huge opportunities, and by focusing a little bit more on the South.
Thanks. We have one more question. This question is for Jens. We'd like to check in on the bank's guidance on the dividend policy again, as we near the end of the year, as it relates to what investors should expect from a regularity and a sustainability perspective. Alex mentioned earlier that the CAR has actually increased this year, so would it be fair to expect continuation of the distributions that we saw in 2024 ?
Yeah, thanks for the question, and probably the answer is the same, like, I did in some of the other sessions as well. So, first one is, clearly, it's the prerogative of the board to say, "Are we paying dividends? Are we not paying dividends?" When we, as a management team, went to the board and said, we think after 10 years of retaining all the earnings, we should consider changing the dividend policy, we clearly didn't do it with a one-year mindset. But we basically went through the simulations and said, "What would the next 10 years look like, and do we think we can actually afford it?" And, from that perspective, and at least from the way how the analysis was done, and people should expect, that this was the intent.
And if you see, right now, we paid quite an okay dividend of VND 1,500 per share, while at the same point in time, actually, our CAR went up to 15.1%. And we are still growing at around 18% clip. You can probably see that the key factors which we laid out for dividend policy, which is we need to maintain a 15%, roughly 14%-15% CAR, and we need to be able to fund our own growth. That still seems to be the case, despite us having paid the dividend this year. So from that perspective, as I said, it is always the prerogative of the board. There might always be situations where we are saying, "Sorry, and cannot," or something has changed.
But from the original intent, we still maintain that this is what we proposed, that is what we analyzed, and that is what we think structurally, from a profitability perspective, and the bank is actually affordable or that the bank can afford to do and continue with that kind of dividend policy.
Thank you, Jens. Thank you, Alex. And this concludes the third quarter financial results presentation. The presentation and replay link will be posted on the IR section of the website soon. Please contact the IR team for any additional questions, and we look forward to speaking to you again in three months.