Banks increase non-credit revenue

Non-interest income of some Vietnamese banks in 2018.

Increase non-interest income

According to the State Bank of Vietnam (SBV), credit in the first six months of 2019 increased by 7.33 percent, approximately equal to the same period in 2018. Looking at each bank, the credit growth picture has a clear differentiation. Some banks grew negatively, but others rose very high, even running out of credit room assigned by the SBV. The highest number of credit room issued by the SBV was 15 percent, while most other joint stock commercial banks were only assigned about 12 percent. This figure is considered much lower than the target of 2018 when most banks are assigned a limit of 14-16 percent.

Therefore, banks must participate in the Basel II "race" in order to gain more credit room from the State Bank. The leader of TPBank expects the limit to be lifted by the State Bank to 20 percent and leaders of some other banks have similar expectations. However, the SBV's view is that credit growth must go hand in hand with quality. Therefore, in addition to how to meet the conditions for easing credit limits, banks must also find ways to grow but limit credit-based.

Accordingly, banks have relied on income from non-credit products such as payment services, insurance, corporate bonds to individual customers, consulting and securities development guarantees. DND's Enterprise Assessment Report said Techcombank's non-interest income in 2015-2018 recorded a 50.2 percent double growth; the contribution of non-interest income to total operating income (TOI) increased from 22.8 percent in 2015 to 39.4 percent in 2018. Similarly, Vietcombank's non-interest income reached 28 percent of the total income of ACB is 26 percent, of MB is 25 percent, VietinBank is 22 percent...

Service development

ACB set a strategy to increase service fees. Currently ACB is in the top five banks with the proportion of service fee income in total income, reaching 10.7 percent in 2018. Accordingly, payment and treasury services are the main source of fees with the proportion of 54.1 percent of ACB's service fee income. Other sources of income from fees include account management fees, card fees and insurance commissions. Therefore, ACB has launched a series of new products aimed at many different customer segments. ACB is expanding contacts with suppliers and distributors in the supply chain of existing enterprise customers to expand customers. In addition, the bank has also promoted payroll services for new corporate customers to reach employees of these companies.

At Techcombank, this bank has built a high-income customer base, especially in the high-end segment. This is very beneficial for Techcombank in selling insurance products because these customers have the financial capacity and the need to purchase more advanced financial products. Techcombank has reached an exclusive agreement with Manulife Financial Corp. This is expected to boost income from bancassurance (insurance sales via bank) at Techcombank because Manulife will bring more diverse products and expertise in insurance and sales.

In addition, Techcombank has also started a new business direction on corporate bond advisory. Because large corporations have high demand for long-term capital, Techcombank provides bond issuance consulting services. Advising corporate bonds not only reduces liquidity risk for Techcombank but also creates new sources of income for the bank. Techcombank receives up to 1.5 percent of consultancy fees when advising primary bond issuers. In addition, Techcombank also earns an interest rate difference of 1 percent to 1.5 percent when distributing these bonds to individual customers, which is recorded as income from securities trading. The bank set a target of 30 percent growth in the volume of advisory bonds issued in the future.

At the General Meeting of Banks in April last year, bank leaders stated that the view will reduce dependence on credit, boosting the strategy to increase revenue from services. Therefore, retail activities have been promoted by banks in recent years, in which bancassurance and digital banking are the two most concentrated areas. This is the right direction for banks in order to ensure a stable and steady growth of the industry, contributing to the development of the macro economy.