The income from service activities of some banks have continuously increased year by year. However, some banks now focus more on selling insurance than payment services.
Before banks started selling additional insurance services, most of the revenue came from payment and cash services. However, the large profits and commissions from insurance field made many banks to gradually divert.
Payment and cash are the two main services that bank provide to their partners and customers. At many commercial banks, these two businesses still bring in hundreds of billion dong of net profit each year.
In the first quarter (Q1) 2019, the profit from services of banks strongly rose. At some banks, this rise was even higher than the profit growth of lending activities.
Commercial Joint Stock Bank for Foreign Trade of Vietnam (Vietcombank) attained 1.069 trillion dong of net profit from services in Q1 2019, up by 21 percent compared to the same period of last year. Many other banks even saw much higher service profit growth, such as Bac A Commercial Joint Stock Bank (BacABank) with nearly five times (33 billion dong), Tien Phong Commercial Joint Stock Bank (TPBank) with three times (217 billion dong), or Vietnam International Commercial Joint Stock Bank with more than 2.5 times (348 billion dong), etc.
Nevertheless, for some banks, the majority of service income does not come from payment and cash services but from the sale of insurance products and commissions.
Military Commercial Joint Stock Bank (MBBank) in Q1 2019 collected up to 759 billion dong of net profit from service activities, up by more than 140 percent. Most of this number came from the sale of insurance products, while payment and cash services only contributed 150 billion dong, accounting for less than 20 percent.
In 2018, MBBank was also in the top five banks with the largest income from services, but the proportion of payment services only accounted for less than 13 percent, while the sale of insurance products brought about 2.8 trillion dong, accounting for 50 percent of the bank’s total operating service income in the year.
In the previous years, when MBBank has not focused on insurance, payment and cash services always made the largest revenue contribution.
Similar to MBBank, VIB collected up to 348 billion dong of net profit from services in Q1 2019, up by 168 percent. Of this number, less than 60 billion dong (17 percent) came from payment services, and the rest was the commission from the selling insurance.
For TPBank, while the bank’s net profit from service activities sharply rose in Q1 2019, the contribution from payment services significantly declined compared to insurance segment.
In the same period of 2018, TPBank’s net profit from payment services accounted for nearly 30 percent of the bank’s total profit from services. This rate in Q1 2019 fell to less than 25 percent. Instead, the net profit from insurance services increased from 17 percent to 31 percent. Insurance also recorded the strongest revenue growth in Q1 2019 among TPBank’s service activities with a five-time increase over the same period of 2018 (from 17 to 86 billion dong).
Banks’ important source of revenue
However, for many banks, when they have not paid attention to the segment of insurance services, payment and cash services still brought the main revenue source in the structure of service revenue.
Many banks now still maintain high contribution of payment services to their total service revenue. In 2018, five banks saw over 50 percent in the proportion of net profit from payment services to total net profit, including Export Import Commercial Joint Stock Bank (Eximbank, 82 percent), Maritime Commercial Joint Stock Bank (MSB, 78 percent), Vietnam Thuong Tin Commercial Joint Stock Bank (VietBank, 66 percent), Vietcombank (65 percent) and Asia Commercial Joint Stock Bank (ACB, 53 percent).
Talking at a recent seminar, Phung Nguyen Hai Yen, deputy general director of Vietcombank said that the bank’s management board has set a strategy to become the largest retail bank in the system by 2020.
With the focus on retail segment, the bank’s revenue from payment services will increase stronger. In 2018, payment services brought Vietcombank 4.590 trillion dong of revenue, resulting in a net profit of over 1.683 trillion dong after deducting the expenses.
MSB also increased its net profit from services from 136 billion dong in 2017 to 272 billion dong in 2018. In particular, payment services still contribute the largest revenue source with 363 billion dong. This number accounted for 78 percent of the bank’s total revenue from services. After deducting related expenses, MSB earned 210 billion dong of net profit, equivalent to a 58 percent profit margin; while the bank’s profit margin from credit activity in the same year only reached about 39 percent.
In 2018, statistics of 23 banks which announced financial statements recorded a total revenue of 18.265 trillion dong from payment services, up by 32 percent compared to 2017, and a profit margin of over 55 percent.
