Vietnamese banks are playing a risky game in retail financial services

by finandlife30/08/2017 08:47

By Shenming Wang and Christian Kapfer. Source:

Economies of scale, profitability, and developing a comprehensive service proposition remain major challenges in Vietnam’s growing retail banking industry. A long-term sustainable future will depend on how banks execute a right risk-reward balance

Differentiation, profitability, and customer-oriented digital adoption remain major challenges in Vietnam’s growing retail banking industry

Key challenges in applying transformative technological change in retail banking processes are organisational commitment and external and internal communication

Digital adoption is helping drive financial inclusion in Vietnam, as mobile banking connects thousands to credit and financial services

The retail financial services industry in Vietnam will become the top growth market in Asia Pacific this year. It is expected to surge by 29% in regard to retail assets compared to 2016 and the compound annual growth rate (CAGR) of retail income in Vietnam will reach $6.5 billion by 2020 (Figure 1). It is a largely untapped market in ASEAN, with a 20% banked population, and only 6% own a credit card. Many Vietnamese are optimistic of the future with 6% economic growth trending recently, and looking to invest high domestic savings. Vietnamese banks are shifting from corporates to retail, amid ample deposits and low corporate credit growth.

Five years ago, the Vietnamese government initiated a restructuring plan for the recapitalization of the five state banks, and the implementation of Basel II and other international standards are encouraging public confidence. Economic growth is gaining momentum after facing the bad debt crisis between 2012 and 2013, which depressed top line growth and caused high nonperforming loans (NPLs) (Figure 2).

But the retail banking industry faces four core hallenges amidst the improving financial environment: product offering remains undifferentiated, processes and infrastructure are relatively weak, low profitability is hindering development and adaptability, and developing a comprehensive service proposition attuned to customer needs.

Need to differentiate due to steep price competition

Retail banking only started to grow in 2015, and banks articulated their new 2020 strategy in 2016. The strategy, which for the first time involved board members and CEOs of local banks, addressed the need to make retail banking a key growth driver. The Vietnamese retail banking market, after seeing the launch of new and basic products, is shifting its focus from sales to market share and pricing. The State Bank of Vietnam (SBV) wants to see more consolidation and under World Trade Organisation’s (WTO) rules, foreign players in retail financial services market will be granted full access by 2018. While banks are building up their asset portfolio, longer term interest rate pricing capabilities and asset classes without collaterals are emerging.

In this early stage of retail banking evolution, Vietnamese banks are differentiating themselves by launching more sophisticated products such as cash and liquidity management tools for small and medium enterprises (SMEs) or new asset classes in wealth management.

However, local banks are already trapped in a destructive pricing loop. They are under pressure to maintain net interest rates ranging from 2.3% to 4.6%.

In addition, banks are seeking opportunities to cross-sell to existing customers, and to introduce more fee-based products such as insurance and credit cards. Yet, the key to winning this game is service and customer-focused sales. New business models are being introduced and implemented to turn away from being capital heavy and asset heavy, into a more transactional services and service-oriented business model.

Low customer loyalty and a high propensity to switch banks remains a major challenge for banks. In fact, customer base segmentation is more pronounced in Vietnam compared to Indonesia or the Philippines. However, it is still too early to understand how these segments affect purchase and service behaviour.

Implementing Basel II

At the start of 2017, SBV issued a directive targeted at restructuring financial institutions and to deal with impaired loans, moving the industry to operate within the framework of Basel II and eventually bring banks closer to meeting international standards. Basel is the set of international banking regulations put forward by the Basel committee on bank supervision, setting minimum capital requirements for banks and requires them to apply risk management methods.

Data from SBV indicates that the Vietnamese financial industry has made good progress in lowering the NPL ratio, from a high of about 4.93% in 2012, to about 2.46% in the fourth quarter of 2016. While this is good progress, implementing international banking standards will help the industry find a right risk-reward balance and ensure a long-term sustainable future.

Applying Basel II standards in Vietnam is necessary to integrate the financial industry into the global banking system, protect customers, and reduce risks and mistakes as the industry scales, and new more sophisticated financial products are introduced. In an SBV issued circular recently, commercial banks are directed to maintain a capital adequacy ratio (CAR) of at least 8% from 2020. According to a report from the National Financial Supervisory Commission, the minimum CAR of the entire Vietnamese banking system in 2017 is estimated at 11.3%.

BIDV was among ten top banks selected to pilot Basel II implementation and has been active in consolidating risk and financial data for the purpose of Basel compliance. BIDV has set up 4 stress test scenarios, reflecting real movements in the Vietnamese financial market in 2008, to identify adverse changes depending on portfolio characteristics. Stress-testing conduction complying with Basel recommendations helps BIDV identify material risk and measure the potential capital losses, this has led the bank to restructure portfolios bearing market risk.

Focusing on improving processes and infrastructure

Banks that invested in new loan origination and collection systems are beginning to take a greater focus on front line automation. Most banks have centralised credit decision processes, standardised sales, and reduced paperwork for loan applications, though many continue to rely heavily on manual customer data transfer. There is also a propensity for most progressive banks to link with credit bureaus in order to establish and integrate an automated decision making process. This capability will allow these banks to approve loans almost instantly for certain customer segments.

While banks are fixing their attention on strengthening their operational and credit risk management, they are also increasingly shifting their spotlight on building a developed management information system (MIS) and customer relationship management (CRM) infrastructure. Further investment in technology, risk management and front-line customer service will be critical to gain competitive advantage in this market.

Digitisation has the potential be a game changer in every facet of Vietnamese retail banking, creating more opportunities by combining existing products and new revenue pools to open new markets. Banking services can be personalised to each customer profile with the integration of big data analytics, drawing from traditional data and alternative data sources, chatbots or artificial intelligence (AI) financial advisors.

Digitisation and market risk

Many banks in Vietnam are embarking on digitisation strategies to create new opportunities to improve service quality and optimise operating costs. Banks like Vietnam Prosperity Joint Stock Commercial Bank (VP Bank) are re-engineering their processes towards automation and digitisation, digitising service delivery channels to be accessed through computers and mobile devices.

VP Bank maintains a slightly higher NPL ratio compared to the national average, reportedly at 2.9% at the end of 2016 while the national average according to SBV stands at 2.46%. VP Bank is working to reduce this ratio through big data utilisation to generate a scoring model of retail customers for credit approval and processing. This is to effectively control risks associated with its large volume growth of retail products.

The bank has also begun regular computation of its CAR as per Basel and SBV requirements, improving risk governance according to Basel recommendations. Moving into 2018, data quality, and the implementation of integrated risk solutions will be top priorities for the bank. It also focused on training staff to build their skills and expertise through 150 training sessions over the past year by international compliance professionals.

Current state of play

Prior to 2012, foreign banks have dominated the mortgage market in Vietnam but today, local banks are the major players. The buying behaviour of consumers is moving slowly from all cash purchases to mortgage credit. Mortgage loans account for about 8% of total bank lending compared to Indonesia and the Philippines with 10.5% and 8.2% respectively. Yet, new properties that were launched in Hanoi and Ho Chi Minh City have started to unbalance housing demand and supply, which had lower industry growth in 2016 compared to 2015. It remains to be seen whether mortgages or home ownership will tilt in the future. 

We estimate that the credit card market will grow by close to 40% annually in 2017. Banks are bearing a high risk but are expected to get high returns. The launch of platinum and co-branded cards was a key driver in 2016, but local banks rely too much on filling product gaps and imitating the credit cards of foreign banks.

Everybody wants to knock off HSBC in the premier card segment, yet most lack a more comprehensive service proposition. With aggressive acquisition strategies, there are increasing incidences where local banks are lowering their application standards to as low as $90 for their monthly income. The risk appetite is even higher for mid-tier and smaller banks. Industry credit card delinquencies have risen and range between 3% and 14% among the banks we have met or spoken to.

Profitability measured by return on equity (ROE) in the credit card business remains low or negative for most banks, partly to blame for this is the small portfolio. Most banks manage a portfolio which is only one-tenth of other banks in emerging markets within ASEAN. More forward-looking Vietnamese banks focus on individual products and account level instead of understanding customer lifetime’s value to improve profitability and manage losses.

Profitability also remains an issue in wealth management. While banks have set up their emerging and mass affluent segments, they desperately lack scale, the capability of needs-based analysis and a true wealth proposition. The contribution of investment and insurance fee income to total wealth income remains low. The car industry is currently enjoying early growth and is expected to mature by around 2025. The demand for auto loans will become stronger in the coming years but risk might be building up in the car segment too with a slew of new and cheaper cars emerging in 2017, in addition to rising delinquencies in banks’ portfolios.

The regulator is forcing banks to set up separate financial companies to handle the high risk areas and to protect the full entity from any potential fall outs. Under the central bank’s directive, lenders are also required to merge or go bankrupt as it plans to reduce the total number of banks to as few as 15 by 2017 from almost 40 in December 2016.

Transformative effects of financial technology

Vietnam is already in the midst of its second financial technology (fintech) wave, the first wave saw many fintech companies enter and leave the industry. A new layer of technology is set to shift the focus of productivity from being bank-centric to enabling customer-driven productivity and scale. This will be driven by cost-effective deployment of artificial intelligence and robotics, leading to higher productivity at lower cost.

Technological changes are being embraced throughout the region with a speed and scale that risk leaving many Vietnamese banks behind. While banks are good at buying technology, they often struggle to decide how it fits into their architecture. To be successful, banks need to start with customer experience, before working back to the technology.

At The Asian Banker The Future of Finance Vietnam, Steve Monaghan – chief innovation officer of Gen Life, an insurance platform – remarked that design is increasingly playing a bigger role in supporting financial technologies. In one of the conferences, three trends were identified as shaping the future of digital retail banking in Vietnam: data & AI, ubiquitous connectivity, the human touch.

The difficulties banks will face are the efficient use of resources and people, the industry needs skilled talent that can bridge banking with emerging technologies.

Banks need to capitalise on their competitive advantage to attract the right level of talent, providing capital and equity in strategic partnerships or acquisitions. By focusing on people and training, taking the time to work on product development and governance, management quality translates into better business.

Key challenges in applying transformative technological change in retail banking processes are organisational commitment and external and internal communication. Leadership needs to understand that shifting the traditional banking model will incur initial costs without immediate benefits; communicating with stakeholders, customers, and staff is also important to ensure that digital adoption is successful.

Digital first strategy

Several newer banks apply technological change in retail banking faster and more extensively than others, due to their absence of legacy processes and mind set. Tien Phong Commercial Joint Stock Bank (TP Bank) was established in 2008 and has clear strategic priorities to be the best digital bank in Vietnam.

TP Bank already has a strong fintech foundation and an advantage in applying new technologies for automated and digital banking solutions and product development. It deployed new products in 2016 to increase fee incomes and better meet customer demands through sales promotions, partnerships, and other sales acceleration programmes.

The bank’s “LiveBank” project diversified the channels of  banking transactions and provide 24/7 customer service, offering more access points to banking services to expand customer accessibility and reduce transaction times. Other apps and applications are leveraging innovative market technologies like biometrics to help log in and authenticate transactions via fingerprints.

Critically, TP Bank was able to keep its NPL ratio well below the required level set by SBV, ending 2016 with only 0.7% NPL, a slight increase of 0.03% from the previous year. TP Bank is actively strengthening its risk management towards Basel II compliance, with standards equivalent to the top ten domestic Vietnamese Banks.

Driving financial inclusivity

As economic growth gains momentum, the focus is on increasing financial inclusivity in Vietnam where the banking penetration is around 20%. Established banks who fail to address inclusivity will lose out when other business and start-ups enter and turn it into interesting and innovative businesses that capture market share. Regulators are stepping aside and opening the way for the private sector to drive financial inclusion, fintech is driving down transaction costs and opening access to the market.

The speed and scale of companies driving financial inclusion is challenging the fundamentals of banking in Vietnam, and lowering transaction cost is one of the primary strategies to remain profitable. Companies and financial institutions that cannot handle cost and risk effectively will lose out in the long-run.

Retail banks in Vietnam must evolve into an adaptive business culture, deepening their understanding and feedback from customers. The past eight years in Vietnam has seen the emergence of a more

collaborative financial ecosystem, as regulators, banks, fintech and consumers cooperatively take ownership in terms of designing products and technology services.

Regulators are encouraging different companies into the ecosystem to create competition, banks no longer view fintech as competitors but as opportunities, and consumers are more intelligent looking for products and services that are fast and convenient.

Striking the right balance

In Vietnam’s rapidly growing retail financial services environment, banks are bearing high risks but expecting high returns. Customer service and customer-centric selling usually fall short as demand outpaces supply. Distribution and sales in a fast growing pie are critical to banks. In this early stage of retail banking evolution banks are under pressure to improve product offerings while dealing with high interest rates, as they change their business model to be more service and transactional focused. As the profile of retail banking shifts mortgages, credit cards, and wealth management are under consolidation efforts and foreign competition, making the industry a risky place to be in.

Additionally, digital adoption is helping drive financial inclusion in Vietnam, as mobile banking connects thousands to credit and financial services. Unburdened by legacy systems and mind sets, Vietnam is in a unique position to take full advantage of the digital banking movement. Banks are aware that differentiation, profitability and a customer oriented digital strategy remain major challenges in the emerging retail banking industry. If they are able to execute the right risk-reward balance, a long-term sustainable future is waiting.




Economics | Stocks

VAT đề xuất tăng từ 10% lên 12%

by finandlife17/08/2017 16:18

CTCP Chứng khoán TP.HCM (HSC) về đề xuất tăng thuế VAT cho biết, đây có lẽ là thông tin không tốt cho cổ phiếu ngành hàng tiêu dùng, trong khi ước tính việc tăng thuế sẽ giúp ngân sách có thêm 59.000 tỷ đồng, chiếm 33% tổng thu ngân sách.

Hiện, thuế giá trị gia tăng đóng góp khoảng 28% thu ngân sách thường xuyên và khoảng 25% tổng thu ngân sách trong giai đoạn 2010-2015



Thứ nhất, thuế VAT nhìn chung có tính “lũy thoái”, do vậy sẽ đánh vào người thu nhập thấp nặng nề hơn. Người tiêu dùng, bất kể thu nhập cao hay thấp, đều phải đóng cùng một mức thuế VAT cho cùng một sản phẩm chịu thuế. Song do người thu nhập thấp phải dành một tỷ trọng thu nhập lớn hơn cho tiêu dùng nên gánh nặng thuế họ phải chịu sẽ chiếm một tỷ trọng cao hơn so với thu nhập. Tăng thuế VAT vì vậy sẽ làm người thu nhập thấp bị tổn thương nhiều hơn - do vậy khó được chấp nhận dưới góc độ công bằng.

Thứ hai, tỷ trọng đóng góp của VAT trong tổng thu ngân sách của Việt Nam hiện đã khá cao, cao hơn hẳn so với các nước EU – là những nước có thuế suất VAT thuộc nhóm cao nhất thế giới. Với thuế suất VAT phổ thông hiện nay là 10%, VAT đã chiếm tới 27,5% tổng thu ngân sách của Việt Nam. Trong khi đó, với mức thuế suất trung bình cao hơn hẳn (21,3%), VAT cũng chỉ chiếm trung bình 21,4% tổng thu ngân sách của các nước EU (xem 2 đồ thị ở dưới). Điều này cũng ngụ ý rằng, việc tăng thuế suất VAT không hiển nhiên cải thiện vai trò của sắc thuế này trong tổng ngân sách.

Thứ ba, và quan trọng nhất, nguồn gốc của nợ công và thâm hụt ngân sách nặng nề ở Việt Nam không phải do thiếu khả năng huy động ngân sách mà chính là do hiệu quả chi ngân sách thấp, trong khi tỷ lệ chi ngân sách hiện đã rất cao, lên tới 28-29% GDP. Việc tăng thuế VAT để tăng thu ngân sách không những không giải quyết được gốc rễ của vấn đề mà còn tạo điều kiện và dung dưỡng cho việc chi ngân sách “vung tay quá trán” hay các dự án nghìn tỷ đắp chiếu và kém hiệu quả.


Nguồn: Vũ Thành Tự Anh





[ETF] Merger or Takeover constituent

by finandlife25/07/2017 10:08

7.3.1 If the effect of a merger or takeover is that one constituent in the FTSE Vietnam Index Series is absorbed by another, the resulting company will remain a constituent in the index, and a vacancy will be created. This vacancy will not be replaced until the next quarterly review.

trường hợp này, giả sử bhs đang nằm trong ds, thì khi bị take over, thì cp bị khuyết đó, quỹ nó ko add vào cp mới cho đến kỳ review tới

nếu SBT chưa ở trong rổ thì khi loại BHS nó sẽ thay ngay bang SBT nếu SBT đủ điểu kiện


• If an index component merges with or takes over a non-index component:

– If the surviving stock meets the index requirements (for country/sector, market capitalisation and free-float), it will remain in the index and its shares (if the share change is greater than 10%) and float will be adjusted according to the terms of the merger/takeover.

– If the surviving stock does not meet the index requirements (for country/sector, market capitalisation and free-float), it will be deleted immediately from the index.

vaneck sẽ múc them sbt



Phan Minh Duc, Analyst, ETF Specialist, Fuji Team


Economics | StockAdvisory

[MACRO] Q2.17

by finandlife21/07/2017 09:40



VDSC Weekly Market Recap - DQC, RAL, DNP, TTJ

by finandlife13/07/2017 08:45

Published on July 10, 2017

Vietnam's PMI edged up to 52.5 in June, after hitting a 14-month low of 51.6 in May, showing a stronger monthly improvement in the manufacturing sector. New orders expanded for the 19th month in a row on strengthening client demand, with the sub-index reaching 54.3 from 52.2 in May. Manufacturers raised their staffing levels and purchasing activity in response to higher new orders and production requirements.

Vietnam saw its foreign exchange reserves soar to a record high of US$42 billion in end-June, up by US$1 billion against early this year, said the State Bank of Vietnam’s Governor Le Minh Hung.

Deputies of the HCMC People’s Council are pinning high hopes that the city will be able to achieve its 2017 growth target of 8.4-8.7% given monetary market stability, and positive capital mobilization and economic restructuring.

Strategy Report: 1H2017 Earning Release Season

Rong Viet Research released its July 2017 strategy report entitled “1H2017 Earning Release Season”

VN-Index has recorded a strong year-to-date growth of 16.8%. As the market continued to reach new multi-year highs, domestic investors seem to have become more risk adverse. As a result, market liquidity decreased to VND3,563 billion (down 19.1% MoM).

Foreign investors’ sentiment remained positive as reflected by the 6-month accumulated net bought value of VND9,200 billion.

At 16.5x earnings, valuations for the VNIndex are near multi-year highs. However, compared to others Vietnam is among the cheaper markets in the ASEAN + China region. Current valuations are justified by the economy’s rapid development and low inflation environment.

Analyst Pinboard

The Blooming Phase of LED Lighting in Vietnam is Coming

DQC’s LED prices have dropped by 30-40% compared to three years ago, following a wider industry trend. As prices continue to drop over the next few years, we expect higher LED penetration rates.

According to McKinsey’s research, for a life cycle of a new technology such as flat television or digital camera, it takes 5-7 years to reach the penetration rate of 10%, and another 1-3 years to increase to 20%, then grows rapidly afterwards.The estimated global LEDs penetration rate by Statista shows similar pattern: the penetration rate of LEDs reached 10% after 5 years, however, jumped to 26% in the next two years.

It was not until 2013 that local lighting companies such as DQC and RAL started commercializing them. Based on studies of product life cycle as well as the revenue of LEDs of DQC and RAL in recent years, we think that the LEDs penetration rate in Vietnam currently is about 10%. Therefore, we expect a thriving growth of LED lighting in Vietnam over the next 3-4 years.

Dong Nai Plastic JSC (HNX: DNP) – Update on water projects

With many clean water projects expected to run in 2019 and the coming M&A plans, water sector is expected to start to have higher contribution to DNP’s revenue.

Its Binh Hiep Water Plant has increased its design capacity from 30,000 m3/day to 50,000 m3/day at the end of 2016 and maintains high utilization rate (over 80%). Water consumption of Binh Hiep could reach about 15 million m3 and Binh Hiep contributes about VND14.5 billion, up 56% compared to last year.The capacity of water distribution at Dong Tam Water Plant has improved significantly with water consumption nearly doubled from 25,000 m3/day since DNP took over this water plant (Q4/2017). If this plant reaches its break-even point, it will contribute to DNP a net income of VND16 billion.

DNP is also expected to kick off DNP - Long An Phase 1 project (30,000 m3/day) this July and DNP - Bac Giang project (60,000 m3/day). The estimated capital investments are approximately VND900 and VND1,400 billion respectively. The Company will raise charter capital in DNP Water to VND950 billion through a private placement to two strategic partners. The Company may continue to raise capital at DNP Water to VND1,250 billion by the end of 2017.

We maintain our earnings forecast in FY2017 with sales of VND1,960 (+35.2% YoY) and EAT of VND 130 billion (+ 43.3% YoY). We maintain our target price at VND29,700 (before stock dividend), 4.5% lower than market.

Thuy Ta JSC (UPCoM: TTJ) – A Small Ice Cream Company

TTJ listed on UPCoM on June 20th. Beginning with restaurant services, TTJ has expanded business activities to ice cream and ice production. Currently, TTJ owns three restaurants in Hanoi: Dinh Lang, Mamarosa, Long Van and an ice cream production line with the capacity of 1 million litres per year. The Company mainly operates in Hanoi and is a subsidiary of Hapro, which owns 51.25%.

In 2016, ice cream accounted for 49%, while restaurant services accounted for 31% of total revenue. However, restaurant services represented 62% of gross margin.

Management plans to achieve VND115 billion (+4.5% YoY) in revenue and VND8 billion (+9.5% YoY) in net profit in 2017.

Because of capital constraints and government ownership, expansion has been limited. Hopefully following Hapro’s divestment (scheduled for 2017-18) things will improve.

1H2017 Foreign Capital Inflows – a New Record since 2008

Foreigners continued to net buy in June, with a total of VND2,047 billion worth of Vietnamese equities.

Basic resource and Construction & building material shares were the two main areas of interest. Top net bought shares are HPG (VND504 billion), ROS (VND299 billion) and PLX (VND207 billion). In June, foreigners also net bought 8.4 million certificates, equivalent to VND104 billion of the E1VFVN30.

For the first half of the year, total net buying value was VND9,200 billion, a 9-year high. Foreigners tended to pay more attention to F&B, construction and building materials.

Concerns over the Divergence between Price and Volume Existing on the Market


The market liquidity plunged on both the HSX and the HNX by 19.1% and 5.4% respectively, equivalent to absolute values of VND839bn and VND34bn respectively. At a deeper analysis, we found that the decreased liquidity of ROS (-VND625bn, -66.6%) and mid-caps (-VND187bn, -17.2%) were the two main drivers of this decline. The VN-SML liquidity increased by VND17 billion (+4.5%) and the VN-30 liquidity was almost unchanged (-VND2 billion, -0.2%).

Excluding ROS, the numbers don't look as negative. However, that the liquidity didn't continue to increase shows investors’ uncertainty at these price levels.

Only look at the index, it seems expensive as VNIndex jumped 16.8% (YTD). However, if we consider overall market PE (up from 16.3x at the end of 2016 to 16.5x on June 30th), then we believe the market still has room to increase, given the sustainable macroeconomic environment and the efficiency of listing companies.


Source: Rongviet Research

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Economics | StockAdvisory



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