Many foreign banks transferred their retail business to local banks in order to focus on their wholesale business. In fact, they do not “abandon” the retail sector because of its great growth potential.
Dispersed competitive in lending
While some local banks tends to inch up their personal lending interest rate as they have to restructure their capital according to Circular 19/2017/TT-NHNN, many foreign banks compete in interest rate for small-value consumer loans.
At this time, Shinhan Bank credit officers offers interest rates at around 20 to 21 percent per year for unsecured consumer loans with a limit of seven times borrower’s income but not exceeding 50 million dong. In case of customers with higher credit limit, the bank offers a lower rate by about one to two percent a year. As for mortgage credit, it offers loans at less than 10 percent per year.
Shinhan Bank is one of the foreign banks that are pushing small-value loans in Vietnam. Before that, at the end of 2017, it officially received from ANZ Bank Vietnam the entire retail banking division, including its personnel, two branches and six transaction offices in HCM City and Hanoi, together with about 125,000 individual customers.
After the deal, Shinhan Bank’s network expanded to 26 branches and transaction offices nationwide, more than 1,400 employees and it continues to hold the position of the largest foreign bank in Vietnam. Furthermore, Shinhan Bank continued to buy Finance Company Prudential Finance to continue its strong penetration to Vietnam’s financial market.
Not only local banks but also foreign banks boost small-value consumer loans. Among them is Indovina Bank, the first joint venture bank in Vietnam. It has launched a preferential loan programme with customers buying real estate and buying cars.
Specifically, Indovina Bank offers two options to borrowers: fixed interest rate of 7.99 percent per year, free of charge for early repayment from the third year; or fixed interest rate of 9.99 percent per year with free of charge for early repayment, no regulation on early repayment period. The loan term is 25 years and the lending rate is 80 percent of the value of guaranteed assets. However, it requires customers to borrow before June 30, 2019 and the fixed interest rate is applied in the first 12 months.
Standard Chartered, HSBC, Hong Leong Bank, and many local and foreign financial companies also push small-value consumer loans via credit cards.
High profits
The fact that some foreign banks transferred their retail segment, according to financial analysts, was to focus on wholesale. In fact, foreign banks are always interested in retail segment because its profit margin is higher than that of lending to organisations.
Data from the State Bank of Vietnam (SBV) showed that, excluding credit institutions with negative equity, the highest return does not belong to state-owned banks or joint stock banks. It belongs to financial and leasing companies with the return on total asset ratio (ROA) at 3.02 percent, Social Policy Bank in the second place with ROA at 1.02 percent. This shows the high profitability of small-value lending.
At the end of 2018, FE Credit was the subsidiary contributing the largest part in total of 9,200 billion dong of the Vietnam Prosperity Joint Stock Commercial Bank (VPBank)’s total profit before tax although its contribution was thought to have decreased to only 36 percent compared to the previous year. By the end of 2018, ROA and return on equity ratio (ROE) of VPBank reached 2.5 percent and 22.9 percent respectively; its net interest margin (NIM) was at 9 percent.
According to HCM City Securities Joint Stock Company (HSC), FE Credit brought nearly half of its parent bank’s profit. In 2018, FE Credit achieved positive growth. Nearly 30 percent of its loan accounts were new accounts and its number of customers increased by 23 percent compared to 2017.
At the end of 2018, HD Saison achieved a pre-tax profit of 898 billion dong, up 72.7 percent compared to 2017 and contributing 22 percent to the total profit of 4,000 billion dong of Hochiminh City Development Joint Stock Commercial Bank (HDBank). HSC estimated that HDBank’s consolidated pre-tax profit in 2019 will increase by 27.3 percent to 5,098 billion dong, raising its ROA to 23 percent. Its NIM will continue to increase thanks to the perfect combination of retail banking strategy and consumer finance.
Dr Dinh The Hien, a financial expert, believed that small-value consumer credit market in Vietnam still has great potential for growth, so it will attract foreign financial institutions to invest. Currently, many local financial companies have sold 49 percent of its ownership to foreign investors.
