Although credit is still the core business activity which contributes 70-80 percent to banks’ total revenues and profit, the overly fast credit growth also poses big risks for the banks themselves and also the overall credit system.
In addition, right from the beginning of 2019, the State Bank of Vietnam (SBV) sets the credit growth target for the entire sector at only 14%, similar to last year, and this target is the lowest level in the past five years.
Thus, according to assessment of experts, service segment is considered the new growth engine of banks which helps banks diversify their income and complete the profit targets in 2019.
In fact, right from the first quarter (Q1) of 2019, the service income of banks has growing stronger, making changes to the structure of revenue instead of relying too much on credit as before.
For example, although the profit of Vietnam Prosperity Commercial Joint Stock Bank (VPBank) still largely depends on the consumer credit of its subsidiary FE Credit, the bank’s service segment grew by 137 percent compared to the same period of 2018, equivalent to 745 billion dong.
Vietnam International Commercial Joint Stock Bank (VIB) recorded Q1 pre-tax profit growth of 56%, reaching 810 billion dong. In particular, the profit from service segment reached 348 billion dong, up by 168%, mainly from the revenue of insurance commission. In addition, the bank’s revenue from payment services rose by 27 percent to 99 billion dong.
Meanwhile, report of Military Commercial Joint Stock Bank (MBBank) showed that the bank attained up to 2.424 trillion dong of pre-tax profit in Q1 with main contribution from credit activities. However, the profit from the bank’s service segment significantly increased by 2.4 times to 758 billion dong compared to the previous period. This profit contributed nearly 14 percent to the bank’s total operating profit in Q1, while this contribution was only above seven percent in the same period of 2018.
The profit growth of service segment of Tien Phong Commercial Joint Stock Bank (TPBank) is also impressive. With a growth rate of 190%, the bank raised its net profit from service activities from 74 billion dong in Q1 2018 to 216 billion dong in Q1 2019.
The bank which recorded the highest income from services is Commercial Joint Stock Bank for Foreign Trade of Vietnam (Vietcombank) with a total of 5.878 trillion dong of pre-tax profit in the first three months of 2018. However, in addition to the largest contribution from credit segment with 8.498 trillion dong of net profit, service activities also contributed up to 1.069 trillion dong into the bank’s total operating profit, up by 21.3 percent compared to the same period of 2018.
Sharing with VnEconomy, Chair of Vietcombank’s Board of directors Nghiem Xuan Thanh said that “year 2019 is the year for digital banking and Vietcombank has focused on investing and deploying new core banking system to promote revenue growth strategy in the service segment, thereby fulfilling the target to increase the contribution of services to about 25 percent of the total revenue.”
At banks that have published Q1 financial statements such as Commercial Joint Stock Bank for Industry and Trade of Vietnam (VietinBank), Commercial Joint Stock Bank for Investment and Development of Vietnam (BIDV), HCM City Development Commercial Joint Stock Bank (HDBank), Saigon Thuong Tin Commercial Joint Stock Bank (Sacombank), Bac A Commercial Joint Stock Bank (BacABank), etc., it is normal to see a few dozen growth in service segment compared to the same period of 2018.
In a recent report, Viet Dragon Securities Company (VDSC) assessed that in the short term, service income of banks will continue to grow well thanks to payment and insurance activities, but the growth level will clearly differentiate depending in the position and specific strategy of each bank.
In the long-term, excluding the extraordinary revenue, the contribution of service income in total income will gradually rise to 10 percent in 2019 and 13.8 percent in 2022.
