Diversifying non-credit products and services is one of the solutions to improve profits for banks and limiting risks, which has been talked about a lot in recent years. Even in the Development Strategy of the Banking Sector to 2025, the orientation to 2030 also sets out the targets for each period to increase the revenue from non-credit service activities. Accordingly, striving to the end of 2020, banks increase the proportion of income from non-credit service activities in the total incomes to about 12-13%; and by 2025 to 16-17%.
Especially at this moment, when the whole economy is suffering from the Covid-19 pandemic with unpredictable impacts, the banking system is also facing a challenging business targets that is unlikely to be feasible, and it must find a way to offset the lack of revenue from credit activities in the context of reduced credit demand and narrowed Net Interest Margin (NIM).
The shift in operational structure, less dependent on credit, especially wholesale credit also helps banks reduce risks due to negative impacts from the economy, when the Covid-19 has made a number of businesses struggle with settling banking debts.
A financial expert said that it was important to recognise that banks must focus on increasing revenues from services. “Because if we look at the general trend, even without the risk of disease, credit will hardly have the opportunity to grow as high as in previous years, but we are increasingly focusing on the quality of the capital flow not quantity.”
In fact, banks are well aware of this and have promoted non-credit products and services for many years, so the bank’s income structure has been gradually changed. The positive growth in service income in many banks means that the dependence on traditional lending products is decreasing, and banking-financial services are more diversified. In 2019, Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank) was the largest collecting bank in service activities with 4.309 trillion dong, up 27 percent compared to 2018. Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV) and Vietnam Joint Stock Commercial Bank for Industry and Trade (Vietinbank) also recorded a relatively high increase in service revenue with 4.284 trillion dong and 4.056 trillion dong, respectively. Military Commercial Joint Stock Bank (MBMBBank), Vietnam Technological and Commercial Joint-Stock Bank (Techcombank), and Sai Gon Thuong Tin Commercial Joint Stock Bank (Sacombank) earned net profit from service activities of over three trillion dong. Many banks also showed net profit growth from service activities over 100 percent such as Lien Viet Post Joint Stock Commercial Bank (LienVietPostBank) (157%), Vietnam International Commercial Joint Stock Bank (VIB) (145%), and National Citizen Commercial Joint Stock Bank (NCB) (100%).
From the beginning of 2020, Vietcombank’s leaders emphasized that the bank would continue to increase the proportion of non-credit income to total income, focusing on services. The bank’s representative said that the bank would focus on sharply increasing service revenue from products and services associated with digital banking conversion, improve service quality, and enhance the overall sale of products and services to customers.
Covid-19 is a risk factor, an external challenge, and a reason to stimulate banks to pay more attention to boosting the retail and service segment such as: bancassurance; consulting financial and business solutions; foreign currency trading; and bank card business.
Bancassurance has become a part of the growth strategy of many banks, especially banks with a strong shift towards retail. The strategy reports of Rong Viet Securities Joint Stock Company showed that income from banking services would continue to expand and would mainly be promoted through banking insurance. Viecombank and ACB are forecasted to be the next banks with significant growth. Specifically, Vietcombank has signed an exclusive contract with FWD life insurance company in November 2019 while ACB will soon have exclusive insurance agreement this year. Banks are encouraging customers to use the online transaction channels through the reduction and exemption of fees and charges related to money transfer services, which also helps this business segment have more growth opportunities.
The promotion of online transaction channels will also partly support the bank to improve revenue. The key to help boost revenue from services lies in staffing, information technology infrastructure as well as choosing the right products. Only in the field of payment, promoting information technology will help customers increase convenience, enhance experience and promote the habit of using technology more in transactions with banks. The application of modern technology greatly supports the fee collection from the services. Having an outstanding technology infrastructure, advanced products and services will be necessary. The sufficient condition is that the bank must understand customers’ needs and behaviours on digital channels so that they can find effective solutions to bring customers superior value and experience.
