Banks are making efforts to strengthen their services, boosting cross-selling the segment that has high profit margin, in order to improve business effectiveness.
*The trillion dong profits from service
The financial service industry is experiencing unprecedented changing period in order to meet increasingly diversified demand of individual customers and organisations.
Accordingly, income from service segment of banks has witnessed very fast growth over the last period. According to the National Financial Supervisory Commission (NFSC), the net income from service operation of the banking system in 2017 increased 34.7 percent compared to 2016.
Considering 15 banks including BIDV, Vietinbank, Vietcombank, Sacombank, Techcombank, VPBank, MBBank, ACB, Eximbank, HDBank, SHB, TPBank, VIB, NCB, LienVietPostBank, the growth of service revenue last year amounted to 48 percent. This is the highest growth in five recent years. The absolute figure of the total service income of these 15 banks was more than 34.724 trillion dong.
In five recent years (2013-2017), the income from service operation of these 15 banks reached an average growth of 38 percent/annum.
Credit remained the core business operation, which brought about the major revenue to banks. However, too fast credit growth also came along with big risks for the banks themselves and the entire credit organisation.
Meanwhile, service only contributed relatively small proportion out of the total income of banks but has recently contributed trillions of dong to many banks because this is the highly profitable business segment with sky-rocketing profit, accounting for 60-90 percent.
Nine banks attained more than one trillion dong profit from service last year compared to just five banks in 2016. BIDV was the bank that had the highest revenue from service operation in the system with 5.633 trillion dong in 2017, up 19 percent from 2016.
Vietcombank closely follows with 5.381 trillion dong, of which, income from payment service contributed 3.452 trillion dong.
Last year, Techcombank surpassed Vietinbank to account for the third position in the banking sector in terms of income from service with 4.520 trillion dong, up 77 percent from 2016, of which, trust and agent services of this bank had unexpected growth, bringing about as much as 1.581 trillion dong revenue. This is also Techcombank’s major income last year.
Though BIDV and Vietcombank ranked the first in revenue, Techcombank was the biggest earner from service with 3.812 trillion dong, much higher than BIDV with 2.987 trillion dong. The reason was that Techcombank’s service cost is much lower than BIDV, Vietcombank, Vietinbank or Sacombank.
In 2017, this bank only spent 708 billion dong on service operation, including payment service and cash, telecom service, treasury service, consultancy, etc. Meanwhile, BIDV, Vietcombank, Vietinbank, and Sacombank had a total spending of 2.646 trillion dong, 2.840 trillion dong, 2.447 trillion dong and more than 815 billion dong respectively.
It seems that the large network of these four banks brought about advantages of number of customers, number of issued cards, etc., helping service income to be plentiful, but that is also the reason why management cost becomes more difficult.
The revenue of banks from service segment, according to the forecast of the National Financial Supervisory Commission (NFSC) will continue rising in the future. In particular, the factor that supports the increase in payment service fees at some banks and the exclusive cooperation with large insurers will also bring about a lot of revenue from fees and commissions in the near future.
*Improvement of revenue quality for banks
The strongly increased income of service operation in many banks was a noticeable bright spot but the contribution to the net income as well as the total profit of this business segment at banks is still not high in fact. The profit of Vietnam banking sector still depends too much on credit segment. According to NFSC, the net profit from service operation still accounted for 79.1 percent of the total net income from business operation of banks in 2017 (reckoning for 76.4 percent in 2016).
Banks are gradually shifting their operations towards enhancing the supply of financial services to limit risks, but still face many obstacles, of which, the most two difficult factors now is technology infrastructure and the habit of using service of customers.
The current average income of Vietnamese people is still low ($2,385/person). The habit of making payment in cash and the fact that service quality of some banks is still poor has made people to hesitate paying for utilities. However, banks believe that this trend has been gradually changing against the digitalisation wave of banks.
Techcombank leaders said during the working process with medium scale businesses, the bank detected that the major concern of this customer group is not high lending rates but financial costs from guaranteeing and foreign currency exchange. Therefore, the bank does not pay attention to raising outstanding credit, but focusing on solving financial needs of customers.
Techcombank’s audited consolidated financial reports in 2017 also showed that the bank’s direction is right when payment service and cash along with trust and agents are the two segments that made the largest contribution to the bank’s revenue from service with nearly 70 percent. Especially, trust and agent segments increased nearly 1.5 trillion dong last year.
To diversify risks and increase the non-interest income, banks are strengthening the service development and cross-selling. Vo Tan Hoang Van, CEO of SCB said the bank’s business result last year touched suitable growth rate with the consolidated pre-tax profit of 164 billion dong, up more than 20 percent from 2016.
It is worth noticing that the non-interest income rose 76 percent from 2016, reaching 1.516 trillion dong. Specifically, the profit from securities trading increased 2.5 times from 2016, reaching 626 billion dong. The collection of service fees improved 54 percent, touching 871 billion dong. The international payment also grew sharply in 2017 with service fee to reach about 153 billion dong, up 2.55 times from 2016.
The achieved results proved the sustainable growth of SCB’s credit income over the years and that the bank’s income quality is increasingly improved.
“The good non-interest income has contributed positively to the profit, helping the bank have chance to settle bad debt, exempting and reducing interest for customers. As SCB has actively reduced interest for customers and put for provision, profit was affected. In reality, SCB’s profit before reducing profit for customers and putting for provision in 2017 reached four trillion dong”, said Van.
With the direction of becoming a leading retail bank, Van said SCB is carrying out many business plans in order to improve income structure, raising non-credit revenue and lessening the dependence on credit. Accordingly, SCB has strengthened the cross-selling of products with the target of providing the most comprehensive and oustanding financial product packages.
As of the end of 2017, the number of individual customers at SCB touched more than 768 trillion people, up 26 percent from the end of 2016, of which, the number of customers aged 40 and above accounted for 54 percent, and the number of customers aged less than 40 reckoned for 46 percent.
Both of these customer segments grew in 2017 with 39 percent for customer segment aged less than 40 compared to 17 percent for middle-aged customers.
The high growth rate of customer group aged less than 40 showed that SCB has caught up with changing demand of young customer group and has partly succeeded in attracting them to the bank’s modern products.
Pham Hong Hai, CEO of HSBC Vietnam also said with banks in the world, service plays very important role to the annual profit. However, in Vietnam, service remains the major contributor to profit.
Vietcombank and BIDV attained the highest revenue from service in the revenue structure. The following names were Techcombank with 23 percent, SHB with nearly 21 percent and ACB with more than 10 percent respectively.
The remaining banks just recorded less than 10 percent. In spite of contributing a small portion to the total bank income, service is one of the segments that many banks target at because this operation has high profit margin amounting to more than 80 percent.
