When I was in Vietnam in 2009 as a member of Deutsche Bank Vietnam's management board, responsible for opening up the market, retail banking was still in its infancy.
Shortly before, many foreign banks like Societe Generale, Citibank, HSBC, ANZ and Deutsche Bank had come to Vietnam and, full of euphoria, ventured into retail banking, partly on their own, partly with strategic stakes of 10% and more in Vietnamese banks.
A few years later, the disappointment was widespread. The development did not seem to be going in the desired direction. And indeed, cooperation was not always satisfactory, which was due on the one hand to the lack of cultural due diligence, and on the other to the conditions on the ground. The latter included caps on interest rates, rampant grey market banks, hardly any risk management (ORM, CRM, MRM) and a tough struggle to introduce new products, especially in the investment and insurance sectors.
In addition, earnings in retail banking are generally growing more slowly and are less volatile than in corporate banking or even in investment banking. One or the other headquarters of international banks may have lost patience with the retail banking business in Vietnam. Some exited earlier, others later.
The changes in the Vietnamese banking landscape have been breathtaking in recent years. This was certainly triggered by the knowledge transfer initiated by the foreign banks. (I remember countless meetings and trainings of our Deutsche Bank experts at our Vietnamese partner bank). On the other hand, the economic environment in Vietnam had changed a lot. So, the State Bank of Vietnam got inflation under control and the regulatory environment was also gradually adjusted.
Finally, Vietnamese bankers were also becoming better qualified, either through Vietnamese bankers educated abroad or through the increasing quality of domestic Vietnamese training of junior staff. As an experienced retail banker myself, I too often encountered incompetence when I had contact with local banks back then.
That is no longer the case today. Vietnam's banking market has changed massively and is now more professional than ever before, even if there is still work to be done.
In recent years, Vietnamese banks have undergone a positive transformation, especially digital transformation, using advanced technologies like AI and Big Data. Banks have also shifted their revenue structure from the traditional lending segment to products that generate non-interest income, like selling cards and insurance through banking channels. In addition, penetration of basic retail banking products is now much higher. For example, accounts are needed to shop on Shopee, Tiki and Lazada. A decade ago, most Vietnamese did not have their own current account.
The Vietnamese retail banking segment is increasingly coming into focus, as it still offers much room for growth thanks to the growing national economy. On the other hand, the shift to retail banking will also improve Vietnamese banks' profit margins and provide a more stable source of income. This is also important from a diversification perspective (in addition to income from commercial banking and investment banking) to spread risk.
There is a need to catch up especially with regard to the retail lending business. Pham Thuy Duong, deputy director of Dragon Capital's analysis division, for example, stated that the debt of private households in relation to GDP in Vietnam is about 30%, which is significantly lower than in Malaysia, Thailand and China. Moreover, the penetration of retail products in Vietnam, like home loans, credit cards or life insurance, through banking channels is also not high. For example, credit cards are currently used by only about 8-10% of the population, compared to 95% in Singapore. The retail banking segment thus still has a lot of room for growth.
I see various good prerequisites for the retail banking business in Vietnam. I have already mentioned some of them above. Added to these are:
- The advantage of an existing nationwide network, convenient for distributing products and services to customers, along with local understanding and business environment
- An accelerated modernization of banking technology, developing new, multi-utility and socially accepted services like automatic teller machines (ATMs), internet banking, home banking, PC banking, mobile etc.
- More diversified and flexible forms of capital mobilization like laddered interest savings, bonus savings, flexible principal and interest withdrawal savings, interest rate savings based on savings balance combined with insurance, saving deposit, issuing valuable papers, one place-transactions.
- The option of expanding loan formats, e.g. loans to buy a house, buy a car, study abroad, prove your finances, lend to employees, overdraft... to improve living standards when accumulation is not enough. Many types of retail banking services have been implemented like account services, checks, cards, asset management, credit, and mortgages.
The main weak points of the Vietnamese retail banking market are as follows:
- A plan to develop retail banking services has not yet been developed in a synchronous and effective manner.
- There is not yet a viable set of rating instruments of companies and bonds. The implementation of a strong own Vietnamese rating agency - as proposed by Dr Nguyen Tri Hieu, a banking expert - does not yet exist. Investments in the retail banking sector therefore remain uncertain.
- The transparency of the stock market is not yet good enough.
- Retail banking products and services have not been diversified enough to meet the needs of customers.
- In some localities, remote areas, modern retail banking services have not been deployed.
- Smaller scale than foreign banks, no financial resources or quality assets to rely on.
- Domestic banks also have lower quality products and services, inefficient organizational structure, run by unprofessional management.
- In terms of technology, Vietnamese banks still have many gaps compared with international banks.
- The ability of domestic banks to control money is also limited.
- There is still a shortage of human resources with expertise in banking, international commercial law, or research and forecasting capabilities, especially as the bank is moving towards international standards.
Currently, there are central plans to make Ho Chi Minh City an international financial hub. Together with the University of Economics HCMC, an important source of ideas in this context, we (FNF Vietnam) are in the process of discussing which paths are necessary to achieve this. In short, it is an ambitious project, but not unrealistic. In addition to the infrastructure prerequisites that need to be created, further steps are required here. This also includes convincing the international financial world of Vietnam as a business location.
The conditions are favourable, however. In recent years, Vietnam has impressively demonstrated its commitment to becoming an industrial nation. Inseparably linked to this is a functioning and strong banking system that stands on several legs: Besides corporate banking and investment banking, the third essential pillar is retail banking.
* Andreas Stoffers is Country Director Vietnam of Friedrich Naumann Foundation for Freedom.