As Việt Nam struggles under the weight of its bad debts, it has improved its legal framework to handle the situation. By issuing a resolution (42/2017/QH14), the first-ever on the settlement of non-performing loans (NPLs), it has adopted a pragmatic solution to handle bad debts. CEO of HSBC Bank Việt Nam, Phạm Hồng Hải, spoke to Việt Nam News reporter Nguyễn Linh Anh about the effectiveness of the resolution.

Last year the Government issued a resolution on the settlement of non-performing loans to pilot the settling of the bad debt of credit institutions. Do you think it can thoroughly deal with bad debt in future?

Resolution 42 demonstrates the determination of Việt Nam Government to resolve the long standing NPL issue. The resolution provides ways to remove several legal barriers dealing with NPLs and debt collaterals at banks. Resolution 42 also helped change the mindset of some borrowers who were less collaborative with banks in resolving bad debts.

They now understand banks have the right to take over the collateralised assets and liquidate in line with regulations. As a result, a great volume of assets as collaterals for NPLs could be released so banks are free to offer more loans to the economy and reduce operation costs and lower loan interest rates.

According to the Việt Nam Assets Management Company (VAMC) run by the State Bank, from January to November 2017, it resolved VNĐ16 trillion of bad debts, of which about VNĐ5 trillion was resolved in the two-month period after the resolution became effective in August, 2017. However, to fasten the pace of resolving NPLs, more detailed guidelines on how to implement the resolution in terms of court procedure would help banks be more confident in dealing with them. Banks also need to improve corporate governance, code of conduct, transparency and risk management to avoid lending to related parties or risky projects. This would help minimise NPLs at the outset.

In a broader picture, the restructuring of financial institutions handling NPLs has shown effectiveness in strengthening the whole banking system. This great effort has been recognised by international organisations. As an example, in an announcement on October 31 last year Moody’s changed its outlook for Việt Nam’s banking system to from stable to positive for the next 12-18 months, reflecting the country’s strong economic prospects and the positive outlook for most rated banks.

The wave of non-cash payments is flourishing in Việt Nam as many banks shake hands with fintech firms to provide e-payment services. What benefits will fintech bring to the banking sector in future?

Fintech and banking may be considered rivals, but, in fact, we have seen a global trend for banks and fintech companies to shake hands. The partnership gives banks access to new technologies and fintech access to customer base, funding and scale of market opportunity.

Banks have a strong brand, a large customer base, stable infrastructure, balance sheet and regulatory know-how. Start-ups provide out-of-the-box thinking, technical expertise, and ability to adapt quickly to change. Together, they can be far more successful at improving the financial services and customer experience.

I believe we will witness far greater collaboration and integration in the future. At the same time, banks need to transform themselves quickly to be relevant for customers. Otherwise, fintech will gradually replace banks in certain areas, such as payments. At the end of the day, customers need banking services, they don’t need banks.

What is happening in Việt Nam reflects the trend. Several banks, including local and foreign institutions, are utilising technologies offered by fintech to reap new opportunities, and even extend their share of the market. For example, HSBC recently co-operated with a local fintech – VietUnion – to make settling credit-card payments more convenient. Customers can easily, and quickly, pay off their HSBC credit-card balance at any retail outlet of the wide network of up to 5,000 shops offering Payoo – a payment solution of VietUnion. Also, they can choose to perform the transaction using Payoo e-wallet app.

Clearly, the reality of doing business in a world where mobile payments are increasingly popular, means that companies, particularly consumer-facing multinationals, have had to realise the preferences of their customers and give them the flexibility to choose how, where and when to pay. In the rising wave of fintech, the established banks are likely to remain key players if they know how to utilise the fintech innovations.

What do you think about the prospect of the banking sector in 2018? How does HSBC see opportunities for development in this context?

Stepping into 2018, Việt Nam continues to offer a favourable environment for businesses in general, including robust economic growth, strong FDI, improved infrastructure, the rise in middle-income population - and faster reforms. The banking industry had a good year in 2017 and it will benefit from this favourable macro environment in 2018, especially in some highlighted areas as follows.

Firstly, infrastructure. Developing an integrated infrastructure is part of the focus of the Government to boost competitiveness in a country that is already among the fastest-growing in the world. According to the Government, Việt Nam needs about US$48 billion from now to 2020 to develop transport infrastructure. To fulfill the need while the country itself is facing fiscal constraints, Việt Nam encourages a public private-partnership set-up to call on investment from the private sector. This is critical for infrastructure development.

Secondly, M&A. Việt Nam’s policymakers, in recent statements, have framed the sale of SOEs as a means to both increase revenue and reduce government expenditure. This is a positive direction and deserves full recognition. International banks such as HSBC take this as an opportunity to connect local companies with suitable strategic investors and advise on these transactions.

Thirdly, the needs for non-cash payment solutions for both personal and corporate transactions are growing. For corporates, it is true that digital payment offers them added values, such as enhanced security and time saving, so they can be more focused on business development. When it comes to individual needs, using credit cards and mobile payments haven’t been popular. Credit cards account for just a modest proportion of the total number of cards. This means a very potential market for bank to invest in.

Finally, bancassurance. There is a change in the awareness of middle income class individuals. While conventional perception is that savings/investment should be prioritised when considering life-protection insurance, they increasingly place the most importance on protection features.

In addition, customer needs are expanding, with increasing demand for life-insurance cover, medical protection and long-term savings for education and retirement. This offers ample opportunities for companies with a diverse and sophisticated range of market-leading life insurance solutions. The partnership with banks in delivering this product is, and will continue to be, a significant trend. — VNS