When the credit growth is limited at a certain level, banks must seek new sources of revenue to meet their growth requirement. In particular, payment service activities in recent time have seen rapid growth and are expected to continue increasing strongly in the near future.
In the first quarter (Q1) 2019 alone, the net profit from service activities recorded sharp rise. At some banks, this growth was even much higher than the growth of net interest income.
Attaining the most profit from service activities is Commercial Joint Stock Bank for Foreign Trade of Vietnam (Vietcombank, VCB). In Q1 2019, VCB collected over a trillion dong from service activities, up by 21.3 percent over the same period of 2018. However, considering the growth, many other banks posted fairly high growth rates, such as Bac A Commercial Joint Stock Bank (BacABank, 467%), Tien Phong Commercial Joint Stock Bank (TPB, 190%), Vietnam International Commercial Joint Stock Bank (VIB, 167%), and Military Commercial Joint Stock Bank (MBB, 140%).
The proportion of service activities is different at each bank.
Statistics of 23 joint stock banks pointed out that in 2018 five banks having income from payment services accounting for over 50 percent of the total income from service activities, including Export Import Commercial Joint Stock Bank (Eximbank, 82%), Maritime Commercial Joint Stock Bank (MaritimeBank, 78%), Vietnam Thuong Tin Commercial Joint Stock Bank (VietBank, 66.4%), Vietcombank (65%) and Asia Commercial Joint Stock Bank (ACB, 53%). However, in absolute number, this source of income at Vietnam was relatively low compared to the average level with just 21 billion dong in 2018.
The notable case is VCB as it has always achieved the highest income from service activities in general and from payment service in particular among banks. In addition, the bank’s payment service also contributed the largest proportion. Specifically, in 2018, payment services brought over 4.590 trillion dong to VCB, and the net profit of this activity reached more than 1.683 trillion dong.
Meanwhile, despite being in the top five banks with the largest income from services in 2018, MBB’s income from payment services only contributed 12.5 percent of the total service income. This level was even lower than 2017 (17%).
In return, the bank’s income from insurance business and services brought about 2.8 trillion dong, accounting for 50 percent of MBB’s income from service activities. MBB is currently having the largest profit margin in the sector, reaching over 90.6 percent in 2018.
However, statistics also showed that although the income from payment services increased rapidly in 2018 (TPB even recorded 114 percent increase), the average profit margin fell slightly, showing that banks have paid more attention to cost increase in order to improve payment services.
Specifically, in 2018, 23 banks attained more than 18.265 trillion dong of payment service income, up by 32 percent compared to 2017, while the average profit margin fell by about three to four percentage point compared to the previous years. However, the net profit margin of this activity is still high compared to the common ground, reaching above 55%.
With the SBV’s monetary tightening moves, the income from non-traditional activities have played more and more important role for banks.
According to BSC securities company of Commercial Joint Stock Bank for Investment and Development of Vietnam (BIDV), the non-interest income of banks is expected to grow by 20-30 percent in 2019, thanks to the increase in service fees, the development in individual customers as well as the exploitation of new potential fields such as bancassurance, bonds, etc.
For service activities in general and payment service in particular, banks also set up their own strategies such as developing digital banking, applying technology, etc. in order to drastically improve income from these activities.
Most recently, on May 28th, the first seven banks including Vietcombank, Commercial Joint Stock Bank for Industry and Trade of Vietnam (VietinBank), BIDV, Commercial Joint Stock Bank for Agriculture and Rural Development of Vietnam (Agribank), Saigon Thuong Tin Commercial Joint Stock Bank (Sacombank), TPBank, and An Binh Commercial Joint Stock Bank (ABBank) officially launched their domestic chip cards. This leads to the conversion costs, especially for banks with large number of cards. In the meantime, banks will basically offer free conversion cost for existing cardholders, and will consider collecting fees for issuance of new cards, depending on each period.
Converting magnetic domestic payment cards to chip cards is one of the key solutions of the banking sector which were approved by the prime minister in the Scheme to develop non-cash payment in the period of 2016-2020.
Vietnam currently has 48banks issuing domestic cards with about 76 million cards, over 261,000 POS and 18,600 ATUnder the set plan, by December 31st 2019, banks will complete converting at least 30 percent of the existing magnetic domestic cards, 35 percent of the existing ATMs and 50 percent of the POS to contact and contactless chip technology.
