Banks and credit institutions in Vietnam are now rapidly expanding to retail businesses including retail banking and consumer finance to tap on the unbanked population. Many banks have been developing their risk system to cope with requirements from the emerging retail risk management.
Mr. Béla Slánicz, CEO of Asseco Central Europe Magyarország Zrt
We have interviewed with a risk expert, Mr. Béla Slánicz, CEO of Asseco Central Europe Magyarország Zrt at the conference on Credit Risk Management co-hosted by the Central Economic Commission of the Vietnamese Central Communist Party, StoxPlus and CIC of State Bank of Vietnam in Hanoi on 18 Jan 2018
1. At the conference today your colleague pointed out that banks in the region are experiencing a lower Net Interest Margin recently and in years to come because of the competition towards digital banking, application of data technology and risk management systems. This is an interesting observation for Vietnamese credit institutions, who will have to deal with the situation as well. Could you please explain more?
There are more aspects to the question. First, digital banking results in more automated systems and less operating works, which will decrease the operating costs.
Secondly, there are many FinTech companies appearing on the market. The strong competition generated by these entities will leave only the most efficient companies survive. That requires cost efficiency, which will spill over and erode interest margins.
Thirdly, the application of data technology and risk management systems will provide more precise information in the financial system. As “Know Your Customer” principle may be applied on higher level, uncertainty of the business will decrease, which means less loss, hence risk cost can go down. On the long run, at least part of this saved risk cost has to be shared with the customers because of fierce competition.
2. According to the presentation, the database standardization and data validation are successful factors from your experience at European banks and the importance of database to credit institutions in successfully applying Basel II. Could you please share with us more about this?
If you apply automated systems, the standard and valid databases are prerequisites of the seamless operation. In lack of standardization, the running of models may stop as there are data that don’t fit into predetermined categories. That results in high transit time, which damages the customer experience. If the data are not valid, than data-driven processes are misleading and we end with suboptimal (or wrong) results, which may cause direct losses as well as bad customer experience.
In terms of Basel II, the same applies. Application of Basel II (or Circular 41) also requires automated system, otherwise the computation of the capital becomes troublesome and unstable. None of these cases are acceptable to the regulators or shareholders as the risk and the underlying capital need will be misreported.
3. In Vietnam, a number credit institutions have been trying to develop retail risk management as a way not only to improve underwriting process but also to help determine appropriate and probably lower interest rates in their pricing policy for each borrowers. How will this trend take place and will it contribute to further reducing the lending interest rates in Vietnam?
In a well-designed retail risk management system, the available information allows the bank to precisely evaluate the customer’s risk level and determine the appropriate interest rate. As there are less uncertainty in the information, there are less risk and also less risk premium, while the operating margin may stay untouched. This is a clear competitive advantage for the institution until others also apply the same efficient risk management system.
At the same time, these institutions may apply risk-based pricing, where they provide lower rates for better clients, which results in lower capital need and higher ROE. More risky customers will probably go to the competition (as higher risk means higher rates for them), and they will erode the profit rate of those institutions, who still provide relatively lower rates because of their misleadingly appraised risk level.
At the end of the day, the banks without efficient risk management system will fall behind in competition and may become unprofitable in terms of lending. By the time every bank develops their systems, the whole industry becomes more efficient and the lending interest rate will be lower across the board.
4. Vietnam currently has 10 banks selected by the SBV to pilot Basel II application. The process is ongoing and many other banks will follow soon as required by the regulation. Could you give some further advices or critical success factors in this regard for Vietnamese banks?
My opinion is that good data mart and well tested solutions are key to success as well as effective organizational governance. Perhaps I don’t have to explain the importance of data and solution as Basel II should be a data-driven process. Good organisational governance is needed since even if it seems simple at first sight, Basel II has quite a few pitfalls. From many aspects, the bank is shooting a moving target. There are a lot of new definitions (default, different haircuts, etc.), which may well change while the software solution is fitted. If the project is not organized to handle change management effectively, the many little changes during the project which may substantially increase time need and budget of the project.
On the top of the above, having a good partner with expertise and solution is also a key. If the partner has both, then you may expect that their solution has already been flexible enough and streamlined to a good extent to be able to cope with the challenges the project may cause.
5. Asseco is one of the key providers in risk solutions and consulting in European, especially risks for retail sector. To what extent your solutions can be adapted and applied in Vietnam? And if yes, how long will it take for Asseco’s solutions to be successfully deployed for a Vietnamese bank?
Our specially developed solution for managing retail risk is Asseco Risk Platform (ARP). It is automated, flexible and based on the newest IT development technologies. It covers all the needs of actual risk management. It is a solution that can be used for all departments of a company and enables them to handle processes that seem too difficult to handle. If changes take a lot of time and/or automation is necessary due to efficiency improvement requirement, high competition or any other reasons, ARP is designed to solve the problem easily. The solution can handle the contract process with the customers with flexible built-in scorecards.
We used Business Process Model and Notation 2.0 methodology, which is one of the newest technologies, to make ARP easy-to-use with the least IT support needed. I am confident that it can be well applied in Vietnam. ARP translation to Vietnamese language has been in progress and will be ready within weeks, so there will be no limit on adaptation into the local market.
The deployment time may vary depending on the technological and professional standards of the client. I would say, depending on the complexity of the planned processes and products, it will be generally around 3-6 months if the standards are up to date. If there is a need, the deployment can be supported by our internationally experienced consultants, who will help to design the processes profoundly and builds that experience into the processes.
Introduction of Asseco
Asseco Group is the 6th largest software house in Europe with more than 22.000 employees, established in1991. It has presence in more than 50 countries and Asseco Group companies are listed on stock exchanges in Warsaw, Tel-Aviv and on the American Nasdaq as well.
As a member of the Asseco Group, Asseco Central Europe Magyarország (Hungary) Zrt. is an integral part of a highly interconnected global network. Based in Hungary, we offer both a full software solution for consumer lending and comprehensive retail lending business consulting. We combine international know-how and local expertise along with best in class service with more than 20 years’ experience. Our existing customers are capable to manage more than 100 million loans per year using our solutions.
Risk Solutions by Asseco
Asseco provides solutions for the entire lifecycle of the consumer loan portfolio and related business consultancy services.
Our technology product range starts with Loan origination module where financial players can acquire new customers. The heart of the end-to-end solution is Asseco Risk Platform, which is a BPMN2.0 decision engine. With this module banks can identify the best customers fit to their financing strategy using automated scorecards and automated decision process without the intervention of IT department. The successfully contracted new customers are fully managed in our Loan Account Management Module and finally, Collection System is ready to support in case of customers payment difficulties. On the top of that we have the newest Omnichannel solution on the market.
Our solutions are based on innovative, flexible and parameterizable technologies and tools. Our existing customers can modify processes and rules quickly so they can react to market changes immediately. With the automation possibility, the internal efficiency has been increasing, which results increasing profitability.