Retail banking - a driving force for banking industry breakthroughs (2024)

Speakers at the event.— Photo courtesy of VIB

HÀ NỘI — Vietnam International Bank (VIB) teamed up with SSI Securities Corp (SSI) to organise an online talkshow themed "Retail banking - the breakthrough driving force of the banking industry" late last week.

The online talkshow attracted more than 500 experts from leading securities companies and more than 350,000 individual investors on online platforms such as fanpages of VTV24 Money, CafeF, NDH,VIB and SSI.

Trần Thu Hương - VIB’s Head of Strategy cum Head of Retail Banking; Lê Quang Trung - VIB’s Deputy CEO cum HeadofTreasury Division; Nguyễn Anh Đức - SSI’s Managing Director - Institutional Brokerage; Phạm Thùy Dương - Dragon Capital Investment Fund’s Associate Director of Analysis; and Daniel Tabbush - Founder of Tabbush Report, all participated.

It discussed three main topics including the macro economic prospects and Việt Nam's banking industry, especially the retail banking segment, a story of the leading retail bank in Việt Nam and the guests' perspectives on the valuation of the Vietnamese banking industry.

Macroeconomic outlook in 2022

Việt Nam's stock market is gradually entering the final sessions of 2021. On the Hồ Chí Minh Stock Exchange, the market benchmark VN-Index ended at 1,476.61 points on December 16, up 34 per cent compared to earlierthis year.

With new records set, investors are expecting positive prospects on macroeconomic outlook as well as the stock market in 2022.

Nguyễn Anh Đức said there were many favourable factors for the economy to improve strongly next year, including economic reopening after a prolonged social distancing period, allowing enterprises to resume their business and production activities. Thishas resulted in improved income of local people thereby creating a driving force for domestic consumption to strongly develop.

Among the factors were the country’s influx of foreign direct investment and its import and export activities which were expected to flourish in 2022, and the government's strong investment, especially in infrastructur, whichwill facilitate a series of related industries such as construction, real estate, tourism and building materials.

Lê Quang Trung outlined the management of monetary policies by the State Bank of Việt Nam as a very important role in both supporting the economic recovery momentum and curbinginflation in 2021 and 2022.

According to Trung, the current interest rate management policy was in line with the macro balance, inflation, market movements and monetary policy objectives.

He added the banking system was also always ready to provide adequate capital for the economic recovery process in a timely manner. Trung also forecast that interest rates would continue the latest trend of movingsideways and not fluctuate strongly in 2022.

Prestigious funds hold high proportion of bank stocks

Assessing the trend of the stock market in 2022, participants at the events said, the stock market in 2022 would revolve around two main trends: the recovery and growth of post-pandemic business profits, and cash flow of domestic and foreign investors.

They agreed that on the stock market, bankstockswere among thosethat attractedmost attention of investment funds and individual investors. This year witnesseda strong growth rate of bank stocks thanks to impressive profit performance. Amid the widespread social distancing period in the third quarter, the banking industry still managed to keep profits relatively stable.

With expectations of positive business resultsin the fourth quarter of 2021, it was impossible for investors to ignore investmentopportunities in bank stocks to catch waves in early 2022, participants said.

Phạm Thùy Dương saidthe growth potential of the banking industry wasstill very attractive thanks to high credit growth, especially in the retail segment in the context of theeconomy returningto stability after social distancing.

Moreover, the bank's income sources hadbecomemore and more diversified, not only from lending but also from service fees with diversified products to better meet needsof retail customers, Dương said.

Daniel Tabbush said it would be inappropriate and unfair to useaverage price-to-earnings (P/E) and price-to-book (P/B) ratio to evaluate Vietnamese banks as Việt Nam's banking industry was entering aperiod of strong development andenjoying moreprospectsthan that of other regional countries. Meanwhile, there was alsoa big difference in the profit growth rate of banks in the country.

He describedthe price/earnings-to-growth (PEG) ratio as an appropriatemeasure to evaluateVietnamese banks with othersin the region.

Currently, Vietnamese banks hadoutstanding valuation factors with PEG ratiohovering at 0.2 to 1 (below 0.5 is the best), while banks in the region hada PEG ratio of between2 and 4. Thus,once Việt Nam's financial sector openedwider to foreign investors, the banking industry would surelysee the cash flow from foreign investors, he added.

Retail banking:an inevitable trend

Trần Thu Hương - VIB’s Head of Strategy cum Head of Retail Banking delivers her speech at the event.— Photo courtesy of VIB

The speakers at the event agreed that inthe past few years, Vietnamese banks had seena positive transformation, focusing on fostering digital transformation, changing business models, applying advanced technologies such as AI, Machine Learning, big data to understand customer needs, thereby offering innovative products to meet the increasing needs of customers.

At the same time,banks hadstrongly shifted their income structure from the traditional credit segment to products that would bringnon-interest income such as cards, and insurance sales through banking channels. Many of them had paid attention to expandingthe share of the retail segment orconvertingintofull-fledged retail banks.

Phạm Thùy Dương saidnot only private banks, but alsoState-owned ones, hadpaidmuch more attention to the retail banking segment. This wasan inevitable shift because the retail banking segment in Việt Nam wasat an early stage of development, resulting in many untapped opportunities.

Dương added the shift to the retail segmentwouldhelp banks improve theirprofit margins whilebringing them a more stable source of income.

She citedthe balance of consumer household debt to GDP in Việt Nam which stood at 30 per centas a good example.This ratio was relatively low compared to other countries in the region such as Malaysia, Thailand and China.

In addition, the ratio ofindividual customers who used financial products such as home loans, credit cards or life insurance through banksin Việt Nam wasalso very low. For example, credit card ownership in Việt Nam accountedfor only 8-10per cent of the population, compared to 95 per cent in Singapore and 40 per cent in other neighbouring countries.

So there remained a room for the retail banking segment to develop in the future, Dương said, adding thatbanks that didnot aggressively switch to the retail segment might beleft behind in the current competitive context.

Trần Thu Hương saidthat Việt Nam wasa lucrativecountry for the retail bankingindustry thanks to itscharacteristics in population growth, GDP per capitaand rapid economic development.

Being the backbone of the economy, banks couldstay out of the trend of developing retail banking products and services for over 100 million people, or they could realise that retail banking wasan inevitable trend.

Digitisation:an essentialstrategy to become a leading retail bank

Participants at the event also heard about howVIBtransformed itsapproach toattract today's young customer group. The VIB representative saidforeseeingthe trend of customer restructuring and a significantshift in the needs of the customer generation, the bank focused on digitalisation to better accessMillenials and Gen Zcustomer groups six years ago.

Hương saidthis customer segment current accountedfor65 per centof VIB's total customers from 40 per cent in 2016. This proportion was expected to increase to 85 per cent by 2025.

The behaviour of this customer group was completely different from those in the50-60 agebracket as they strove forshopping, insurance and real estateinvestment instead of saving money, Hương said, adding that the personalneeds of this customer group wasalsohigh, so banks should better understand their needstooffer suitable products rather thanproviding them with available products.

In spite ofharshly competing in term of prices as previously, banksshould focus on improvingcustomersexperience in online banking to sharpen their competitiveness, Hương noted.

According to Hương,banks that wereready for digitisation and others with high flexibility and fast and powerful conversion would enjoy opportunitiesto make a breakthrough. She also emphasised the importance of facilitatingindividual customers if a bank wanted to take the lead in grasping these opportunities.

Retail segment offers banksopportunityto break through.

The local banking industry saw the clear shift to the retail banking segment in recent years. Some banks such as VIBconsideredretail banking as their priorityfrom a very early stage.

VIB is nowone of the leading retail banks in Việt Nam thanks toits effective retail business strategy.

The bank’s outstanding retail balance experienced positive growth at 14.2 per cent in the first half of 2021, accounting for nearly 90 per cent of total outstandingcredit balance. Thatwasan impressive figure compared to an average level of 40-50 per centin the market.

By the year-end, VIB expected its profits to be 10 times that of the first year of transitionand the highest in the bank's 25-year history. Theimpressive business results were attributed by Hương toa persistent and consistent orientationon becoming a leading retail bank in Việt Nam in term of size and qualitythat the bank had startedsixyears ago.

At that time, VIB recognisedopportunities from demographic, and that income growth in Việt Nam woulddrive greater demand for financial products and services, which wasaa common trend in developed markets. As average income increased, so didcustomer demands.

In Việt Nam, the current car ownership rate wasonly 16 cars per 1,000 people, much lower than Thailand (200 cars per 1,000 people) and Malaysia (320cars per 1,000 people). Meanwhile, the premium on GDP in Việt Nam wasonly at 1.5 per centcompared to that in otherregional countries at3-4 per cent and that ofdeveloped countries like the US and UK at up to 10 per cent. Thatshowedthe growth potential in times for the domestic retail banking market.

In the income structure, income from toll services of VIB hadincreased rapidly and sustainably, currently accounting for about 20 per cent, among the highest in the market. The bank was expected to increase the proportion of revenue from service fees in total income in the near future. VIB's core and key retail products and services were leading in market share or occupying a large market share, such as car loans, insuranceand credit cards.

The constant efforts in the retail segment hadhelped VIB become one of the most profitable banks in the industry with a return on equityratio of nearly 30 per cent,much higher than the industry average of only 18 per cent.

The CAGR profit of VIB in the past fiveyears hadreached more than 70 per cent, while the industry average wasonly 40-50 per cent, withthe retail portfolio reaching nearly 90 per cent, which helpedVIB not only increase profit margins but also curbrisks.

With the outstanding growth prospects of the retail segment in the future accompanied by a strong recovery forecast of the economy, the leading banks in digitalisation with a strong governance foundation were expected to bringsignificant and sustainable benefits to shareholders in the fiscal year 2022, according to experts.— VNS