TREASURY MANAGEMENT IN TECHCOMBANK

INTRODUCTION

Techcombank is a large joint stock commercial bank in Vietnam.

Since 2018, the bank has gradually transformed its organizational model of treasury
management system from a department to a division. The Treasury Management Division
previously included only Forex trading and Money Market (MM) Unit (being in charge
of interest rate trading activities). Currently, in addition to these units, the Treasury
Management Division -Techcombank has coordinated more departments with more
subordinate units. The questions are, in the new model: What is the function of each
department in The Treasury Management Division? How is the coordination among the
departments? Techcombank's treasury management model is centralized or distributed or
is a combination of both?

Changes in Techcombank's organizational structure

Techcombank's organizational structure 2010

Current organization and management of treasury activities at Techcombank

Techcombank is a joint stock commercial bank, so, The Board of Directors is elected by
The General meeting of shareholders. The Director General directs and supervises
committees: Risk Management Committee, Asset Liability Committee (ALCO), Capital
Management Committee and other Committees. Each committee is in charge of its
divisions. In the front office, there are 3 different customer divisions: Wholesale
Banking, SMEs Banking and Retail Banking. In the middle and back office, there are
divisions such as: Legal Division, Audit Division, Control Division, Product
Development Division, Treasury Management Division and so on.

Treasury Management Division includes centers that are responsible for specific tasks,
such as Trading Center, Sales Center, Business management support Center (BMS)
Credit trading Center and Market analysis and forecasting Center.

Trading Center has 4 units. The first unit deals with foreign exchange, which is mainly
for US Dollar (USD) and dominant currencies of the G7 countries. The second unit is
engaged in trading derivatives such as Swap, futures and options. The third unit works
with interest rates in the money market. This unit takes over the charge of mobilizing and
granting credit on the interbank market. The fourth unit carries out commodity trading.

Sales Center includes Direct Sale and Branch Sale Unit. Direct Sales support Wholesale
Banking Division. The Branch Sale support for Sale and Distribution (SnD) Division.
Sale Center manages all trading activities in the bank. In other words, the change in
customer's assets when making foreign exchange, derivatives and other commodity
trading is not recorded separately on the customer's account at the branch but recorded
and tracked by The Sale Center in the headquarter. When customers buy and sell foreign
currencies, financial assets, and commodities at any branches, the value of the transaction
will be recorded and tracked on the respective asset type management system in the head
office. When a branch makes any transactions with customers in the interbank market,
the transaction prices are defined at the interbank prices which are adjusted to a range of
fluctuations for each asset class. This range is typically from 0 to 5 currency unit relative
to the interbank price. Based on market information offered by Market analysis and
forecasting Center as well as the information tracking field, Trading Center at the
headquarter will determine the associated commodity prices and compile the fluctuating
prices. Thus, when a branch purchases and sells assets, it will record this transaction at
the adjusted interbank price with a certain fluctuation range.

When trading at market price with other customers, The Branch Sale Unit supports
branches with information and technology for them to determine the price. Profit from
these transactions at branches and Wholesale Banking Division is the difference between
the buying and selling prices between the branch and the division with customers and the
selling and buying prices between the branch and the division with The Trading Center.
The Direct sales Unit will also offer necessary supports for branches when they have
transactions with large customers (wholesale banking customers such as other financial
institutions and customers of SnD). Profits are calculated for both branch, SnD and Sales
Center.

Thus, the Sale Center is the bridge between branches, as well as Trading Center (for
foreign exchange, commodities and derivatives) and large customers.

The Trading Center’s profit depends on whether it trades in the spot or futures markets.
In the spot market, the profit earned is the difference between the buying and selling
prices between the head office and branches and the buying and selling prices of the head
office in the interbank market. To increase profits, The Trading Center decides the
trading position based on the forecast of price movements in the market. For instance, in
the daily process where branches buy/sell USD from/for the Trading Center in order to
fulfill their transactions with customers, if the price is noticed that moving up in the
interbank market, The Trading Center can only sell in the market for a short time, then
have to buy back the same amount of USD in order to meet the demand of branches. The
profit, due to the short time gap between selling and buying in the market, is limited. To
break this limitation, the Trading Center would predict the price movement. If it is
expected to go up, the Trading Center will keep a surplus amount of USD and vice versa,
if a price drop is anticipated, the center will keep a shortfall status.

The Branch Sale Unit and the Direct Sale Unit will both support branches with foreign
currency, derivatives and other financial goods transaction.

With a strategy focusing on customers, the Bank is shifting its development strategy to
The Sale Center instead of The Trading Center as before. The main reason is that profit
from trading activities depends heavily on the foreign exchange market, while the
exchange rates in Vietnam are quite stable due to the control policy of the state bank.

Based on the policy issued by the state bank, the Asset Liability Committee (ALCO) will
decide general policies on capital adjustment. ALCO and Balance Sheet Management
(BSM) are in charge of centralizing capital management and the overall liquidity
situation for the entire system.

The Balance Sheet Management (BSM) manages The Money market Unit (MM) to carry
out the business of mobilizing and granting credit on the interbank market. When
branches mobilize or extend credit to customers, the amount of mobilized capital and
assets is recorded on the balance sheet of the bank by Bank Management Support Center
(BMS). For term deposits, branches will offer customers the interest rate informed by the
bank. This mobilized capital at branches is delivered to the head quarter and recorded to
the balance sheet at the rate of VOF (value of fund). When branches need capital for
granting credits, BMS will transfer capital to branches at the COF rate (Cost of fund).
VOF and COF are determined by ALCO for each units of Trading Center. Branches grant
credit to customers with loan interest rates.

Deposit rate that branches offer customers = VOF - profit margin - operating expenses of
the bank per capital.

Branch lending interest rate to customers = COF + profit margin + bank operating
expenses of the bank per capital.

The bank’s capital will be centrally recorded and managed. Balance Sheet Management
BSM collects capital, assets and transfer capital between the head quarter and branches.
After the balancing process, if there is excess capital, BMS will convey the capital to the
Trading Center to grant credit in the interbank market. Conversely, the Trading Center
will borrow from the interbank market if BMS inform a capital shortage.

At Techcombank, the Credit Trading Center also performs the treasury management
function through the purchase and sale of corporate bonds in the secondary market for
credit distribution. For example, a business customer has an outstanding loan balance
below its credit limit. However, if this company suffers some operational difficulties,
instead of disbursing new loans, the bank may purchase this company's bonds, as an
alternative offer to its customer. By doing so, the bank is able to perform a bond repo to
recover its credit capital when the company's solvency declines.

In conclusion, treasury management in a bank not only involves in cash management,

capital distribution but also liquidity issues, credit, and treasury risk management. . Each
bank has its own organizational model and method aligned with the business strategy.

REFERENCES

1. Richard Tinsley, Advance Project Financing: Structuring Risk 2nd ed, Euromoney;
Institutional Investor; 2nd edition (June 2014)

2. E.R Yescombe, Principles of project finance, Elsevier, 2nd

edition (2014)
3. Stefano Gatti, Project Finance in Theory and Practice
QUESTIONS/CLASS ACTIVITIES:
1) With the information provided in the case study, determine if Techcombank
persuades centralized or distributed treasury management model? Why?
2) Identify which divisions/centers/units involved in treasury management
activities at Techcombank? Draw a diagram and explain the coordination
mechanism between them in the treasury management activity at Techcombank?
3) Draw a diagram and explain the mechanism of coordination and management of
mobilized capital among branches, balance sheet management (BSM) and Trading
Center?
4) Draw a diagram and explain the mechanism of coordination and management of
foreign currency exchange among branches, Sale Center and Trading Center?