Although credit slows down, banks still maintain good profits thanks to the boost in retail segment. The rapid growth of retail income has made banks race to shift from traditional lending to modern retail by building an ecosystem.
Exciting retail segment
According to many financial experts in a recent retail banking seminar, retail activities if banks have never been exciting like the present time. Dr Can Van Luc, Chief economist at Commercial Joint Stock Bank for Investment and Development of Vietnam (BIDV), credit institutions (CIs) are currently promoting recruitment, especially for retail banking and information technology.
Statistics showed that the income from retail banking has been growing fast in the last three years at an average rate of 23 percent per annum in the period of 2015-2017, while it was 10 percent per annum in the period of 2012-2015.
The opportunity in retail comes from the low coverage of financial services in Vietnam, which is much lower than other countries in the region. The ratio of domestic card users is currently about 16 percent, while the average rate of other countries is 30-40 percent. For credit cards, this ratio is only four percent, just half of the average ratio in the Asia-Pacific region.
It should be added that the shift to retail segment of the Vietnam’s banking sector is partly due to the need to restructure operations after focusing too much on the risky loans in the previous period. As the credit growth is slowing down, and management authorities even limit the credit growth room of many banks, lending packages are easy to reach the limit.
Many retail banks are quite successful when changing direction, branding, and launching products to individual customers. According to Viet Capital Securities Company (VCSC), Commercial Joint Stock Bank for Foreign Trade of Vietnam (Vietcombank) can be considered a “start” with significant growth in retail activities. The bank’s consumer lending growth is even higher than the average growth of both FE Credit and HD Saison the two consumer finance companies of Vietnam Prosperity Commercial Joint Stock Bank (VPBank) and HCM City Development Commercial Joint Stock Bank (HDBank) which are dominating the market.
The build of ecosystem
The retail activities of banks are much diversified with various business models from the private banking sector. For example, VPBank focuses on high-risk loans from the niche segment that has not been served before. Vietnam Technological and Commercial Joint Stock Bank (Techcombank) targets service charging and multi-function operations.
Meanwhile, Military Commercial Joint Stock Bank (MB) seems to pay attention to the ecosystem development with many types of financial services. The bank’s big shareholder Viettel is also actively expanding many business fields from businesses to individuals. The separate report for the third quarter of 2018 showed that MB’s personal loans continued to grow well (reaching up to 28.4 percent over the same period) and accounted for 36 percent of the total outstanding loans, the bank’s highest level ever. MB also has a full range of consumer finance brands (MCredit), life insurance (MB Ageas Life) and non-life insurance (MIC). These companies all experienced strong growth in the first nine months.
In this context, even state-owned banks have to speed up retail segment in order to catch up with the trend. For a long time, this group of bank possessed many advantages in customer data, capital size and wide coverage. When these banks participate in retail segment the dynamic private banking group obviously needs to be cautious.
Another remarkable point is that banks aim to build their own ecosystem. For example, MB tends to attract customers and business partners of its long-term customers (such as Viettel).
Meanwhile, many other private banks invest heavily in technology such as Tien Phong Commercial Joint Stock Bank (TPBank), Techcombank and VPBank, in order to retain customers in their own ecosystem, not only providing banking services but also other related services. For the case of Vietcombank, it is assessed as being quite open with the perspective of shifting from traditional to modern banking model.
Previously, Vietcombank also took the lead with the partnership with MoMo the e-wallet that was piloted in 2009 and currently owns the most subscribers in Vietnam’s market. This is one of the three pilot models for payment services. MB also partnered with Viettel and Petrolimex Group Commercial Joint Stock Bank (PGBank) cooperated with Petrolimex.
According to Nghiem Thanh Son, deputy director of Payment Department at the State Bank of Vietnam (SBV), these models have brought positive results and contributed significantly to improving the access to financial services for Vietnam’s market. The value of transactions made through three pilot models to the third quarter of 2018 reached 22 trillion dong, while it was only 2.4 trillion dong in 2015.
This number also shows that the trend of using financial services of Vietnamese is gradually changing compared to before. By the end of the third quarter of 2018, on the entire market, the payment value via mobile increased by 126 percent, via the Internet increased by 18 percent and via e-wallet increased by 161 percent over the same period.
