Retail banking - a driving force for banking industry breakthroughs

December 21, 2021 - 08:00
VIB is now one of the leading retail banks in Việt Nam thanks to its effective retail business strategy. 


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 Head of Treasury 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 earlier this 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. This has 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, which will 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 curbing inflation 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 moving sideways 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, bank stocks were among those that attracted most attention of investment funds and individual investors. This year witnessed a 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 results in the fourth quarter of 2021, it was impossible for investors to ignore investment opportunities in bank stocks to catch waves in early 2022, participants said.

Phạm Thùy Dương said the growth potential of the banking industry was still very attractive thanks to high credit growth, especially in the retail segment in the context of the economy returning to stability after social distancing.

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

Daniel Tabbush said it would be inappropriate and unfair to use average price-to-earnings (P/E) and price-to-book (P/B) ratio to evaluate Vietnamese banks as Việt Nam's banking industry was entering a period of strong development and enjoying more prospects than that of other regional countries. Meanwhile, there was also a big difference in the profit growth rate of banks in the country. 

He described the price/earnings-to-growth (PEG) ratio as an appropriate measure to evaluate Vietnamese banks with others in the region.

Currently, Vietnamese banks had outstanding valuation factors with PEG ratio hovering at 0.2 to 1 (below 0.5 is the best), while banks in the region had a PEG ratio of between 2 and 4. Thus, once Việt Nam's financial sector opened wider to foreign investors, the banking industry would surely see 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 in the past few years, Vietnamese banks had seen a 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 had strongly shifted their income structure from the traditional credit segment to products that would bring non-interest income such as cards, and insurance sales through banking channels. Many of them had paid attention to expanding the share of the retail segment or converting into full-fledged retail banks.

Phạm Thùy Dương said not only private banks, but also State-owned ones, had paid much more attention to the retail banking segment. This was an inevitable shift because the retail banking segment in Việt Nam was at an early stage of development, resulting in many untapped opportunities.

Dương added the shift to the retail segment would help banks improve their profit margins while bringing them a more stable source of income.

She cited the balance of consumer household debt to GDP in Việt Nam which stood at 30 per cent as 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 of individual customers who used financial products such as home loans, credit cards or life insurance through banks in Việt Nam was also very low. For example, credit card ownership in Việt Nam accounted for only 8-10 per 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 that banks that did not aggressively switch to the retail segment might be left behind in the current competitive context. 

Trần Thu Hương said that Việt Nam was a lucrative country for the retail banking industry thanks to its characteristics in population growth, GDP per capita and rapid economic development.

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

Digitisation: an essential strategy to become a leading retail bank

Participants at the event also heard about how VIB transformed its approach to attract today's young customer group.  The VIB representative said foreseeing the trend of customer restructuring and a significant shift in the needs of the customer generation, the bank focused on digitalisation to better access Millenials and Gen Z customer groups six years ago. 

Hương said this customer segment current accounted for 65 per cent of 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 the 50-60 age bracket as they strove for shopping, insurance and real estate investment instead of saving money, Hương said, adding that the personal needs of this customer group was also high, so banks should better understand their needs to offer suitable products rather than providing them with available products. 

In spite of harshly competing in term of prices as previously, banks should focus on improving customers experience in online banking to sharpen their competitiveness, Hương noted. 

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

Retail segment offers banks opportunity to break through.

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

VIB is now one of the leading retail banks in Việt Nam thanks to its 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 outstanding credit balance. That was an impressive figure compared to an average level of 40-50 per cent in the market.

By the year-end, VIB expected its profits to be 10 times that of the first year of transition and the highest in the bank's 25-year history.  The impressive business results were attributed by Hương to a persistent and consistent orientation on becoming a leading retail bank in Việt Nam in term of size and quality that the bank had started six years ago.

At that time, VIB recognised opportunities from demographic, and that income growth in Việt Nam would drive greater demand for financial products and services, which was aa common trend in developed markets. As average income increased, so did customer demands.

In Việt Nam, the current car ownership rate was only 16 cars per 1,000 people, much lower than Thailand (200 cars per 1,000 people) and Malaysia (320 cars per 1,000 people). Meanwhile, the premium on GDP in Việt Nam was only at 1.5 per cent compared to that in other regional countries at 3-4 per cent and that of developed countries like the US and UK at up to 10 per cent. That showed the growth potential in times for the domestic retail banking market.

In the income structure, income from toll services of VIB had increased 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, insurance and credit cards.

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

The CAGR profit of VIB in the past five years had reached more than 70 per cent, while the industry average was only 40-50 per cent, with the retail portfolio reaching nearly 90 per cent, which helped VIB not only increase profit margins but also curb risks. 

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 bring significant and sustainable benefits to shareholders in the fiscal year 2022, according to experts. — VNS