Vietnamese banks cash in on $44b consumer finance market

The pivot to retail has boosted NIMs, loan growth and operational efficiency.

The industry shift by Vietnamese banks away from big businesses and state-owned enterprises and into the lucrative retail segment is steadily propping up their growth prospects and fuelling their bid to catch up to their regional peers, according to a report from market research firm StoxPlus Corporation.

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Consumer loans grew by a compound annual growth rate (CAGR) of 52.3% from 2013-2017 as banks took advantage of the country’s growing middle class population and improving sentiment in the domestic property market to grow their retail and personal banking businesses.

“[B]y customers, credit to companies remain the largest but credit to individual is growing in proportion,” StoxPlus analysts noted.

The development was particularly evident in 2017 when consumer finance surged 32.5%, effectively contributing 5.43% to headline credit growth figures (18.17%) as it assumed the role as a key driver of country’s lending growth.

Consumer lending also rose from 50.2% in 2016 to 65% in 2017 whilst the ratio of consumer credit to totaloutstanding loans correspondingly grew from 12.3% to 18% over the same period.

“Better Net Interest Margins (NIMs) from Consumer Loans, Fees and Commission income incentivise many banks to shift focus from corporate banking to retail clients,” the analysts explained, adding that retail banking with its higher interest spread has boosted NIMs in 2017.

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A number of banks have since dived headfirst into the lucrative market that’s expected to be worth $44b by 2020, according to a report from Vietnam News Agency. Southeast Asia Commercial Bank has already moved to snap up consumer finance firm Posts and Telecommunications Finance Company for $31.3m (VND710b) whilst Orient Commercial Bank is reportedly mulling the establishment of a wholly-owned subsidiary with with $22m (VND500b) charter capital or acquire at least 70% in an existing finance company by 2018. Vietcombank is also targeting to grow the share of retail loans in its lending portfolio from 36% by end-June to 50% by 2020.

The benefits of the retail pivot to profitability and savings are multi-faceted as fees and commission income as well as one-off income from partnership with life insurers received a boost.

“Banks’ operation efficiency improved with cost effectiveness of retail model and the pay-off of investment in technology,” it added.

With the Vietnamese economy in better shape than it was in the past as the banking sector embarks on a long overdue sector overhaul, the country’s lenders could look forward to a strong year ahead.

“Retail has been a key growth driver for banks and expected to remain so, increasing profitability whilst transforming and digitising the banking landscape,” StoxPlus added. “Vietnamese banks are currently in a high growth phase compared to other regional peers and are expected to generate high profits in 2018”

Photo from Diego Delso, CC BY-SA 3.0