Vietnam- Changing habits

September 26, 2011


Changing habits



Despite the ongoing economic situation there are untapped opportunities to grow if banks can put customers at the centre of everything they do.




While this year is perhaps not the best time for banks to expand, they must seriously consider doing so sooner or later. In its recent Personal Finance Monitor, market researcher Nielsen Vietnam revealed a greater trend emerging among Vietnamese people to save money, whether for their own security, their children’s education, or for any other reason, but they are not yet familiar or comfortable with banking and financial services.


Put together, these two factors give the country’s banks belief about future growth. According to Mr Louis Taylor, General Director of Standard Chartered Bank Vietnam, despite the macro-economic challenges it remains optimistic about Vietnam’s outlook. “We consider Vietnam as one of the few members of our ‘7 per cent’ club, i.e. countries that will have economic growth of over 7 per cent in the next ten years and doubling their GDP in the process,” he said. “We also make it one of our top priorities to communicate our value-added products effectively to our customers. We believe that with the right strategy in place we can turn any potential obstacle into an opportunity.”


Making money work


It will take a lot of time and effort for banking and financial services to become popular, given Vietnam’s cash economy. The Nielsen report indicated that just 32 per cent of respondents said they maintain a transaction account and 31 per cent use an ATM/debit card, while just 12 per cent use banks for deposit accounts. “Consumers are aware of the basic services offered by banks such as transaction and savings accounts, ATM/debit cards and loan services, but the number of people actually using them is limited,” the report stated.


Non-cash payments such as credit cards in particular have seen a modest level of consumer awareness and use. Only 42 per cent of people are aware of credit card services and just 1 per cent of respondents said that they are using credit cards. Primary reasons given included no need, or a desire to use cash, followed by a lack of knowledge about such products.


Other reasons why Vietnamese consumers shy away from credit cards, according to Mr Taylor, include concerns over the security of their personal information or the possibility of losing money. “Then there are bank-specific concerns regarding service charges, such as a balance check fee, a PIN number provision fee and a transaction information copy fee,” he explained. “Complicated banking procedures also make it difficult for users to be issued with cards, and a main reason for high cash use in transactions in Vietnam is the extra fees for card payments applied by retailers.”


It’s true that credit card use is very low for a market of 85 million people, but market observers see some promising signs. Vietnam’s population is young and increasingly exposed to new technologies and they like to apply them in their daily lives. Regional and global experience demonstrates that it will be only a matter of time before credit cards really take off. For banks, credit card services are a key battleground because of the revenues to be earned and the profits to be made.


Meanwhile, international credit card institutions such as VISA, Master Card, and American Express have all come to Vietnam to size up the market. JCB has recently expressed an aim to leverage its presence in Vietnam. The Japanese credit card provider, who entered Vietnam in 1991, signed an agreement with the Vietnam Football Federation (VFF) to display a collaborative decal of the JCB logo at football stadiums with games hosted by VFF. According to Mr Kimihisa Imada, Deputy President of JCB International, the Vietnamese market remains untapped and has opportunities for credit card issuers. “If customers know about credit cards and their features, they will gradually change their habits,” he said.


With rapid growth in credit cards being predicted for the near future, there is a need for banks to improve their credit skills and customer services. Ms Lorijon Bacchi, Visa Country Manager for Vietnam, Cambodia and Laos, believes that there are three strategies that banks should focus on. “The first is to focus on consumer education, and Visa suggests banks provide consumers with a message about feeling secure when using credit cards and accounts,” she said. “Secondly, we encourage banks to place more terminals with merchants. Lastly, banks can provide more elevated products in the market.”


Standard Chartered Vietnam is investing heavily in credit infrastructure and risk-management systems to make sure lending goes to the right customers. The bank will soon launch an online card transaction support system to enhance and promote responsible card use. “With Vietnam’s efforts to migrate to cashless payments over the next ten years, Standard Chartered is working closely with other banks, merchants and government agencies to offer a wider range of services and programmes for cardholders and to encourage the right spending with credit cards,” Mr Taylor said.


He remains prudent, however, as credit cards have the potential to leave the bank with bad debts as well as create financial difficulties for people who may be unable to manage their finances and have an attitude of “buy now, pay later” towards spending decisions.
Room to grow


According to Nielsen, another area of growth potential for banks is the rural market. More than two-thirds, or 70 per cent of Vietnam’s population, live outside of major cities, and while income levels are currently well below those of city dwellers, growth levels are actually quite similar. With three-quarters of rural families saying they save money every month and just 8 per cent using any sort of financial product (primarily savings accounts or insurance), the market is ripe for banks to expand their presence.


In general, commercial banks hesitate to lend money to rural areas due to obstacles such as low interest rates and high risk. Some banks, however, are making a serious push into the segment. TienPhongBank is one, as it plans to lend VND1,000 billion ($48 million) to the rural market.


According to Mr Vu Tu, General Director of Tien Phong Bank, rural areas are changing from simply being agricultural to production and manufacturing. “So if we identify how to serve this market we will not only contribute to Vietnam’s key export sector but also earn profits through product cross-selling activities,” he said.


He added that the bank has studied and kept abreast of the rural market and is confident of controlling any risks. “TienPhongBank has identified an opportunity for cross-selling products and services, such as mobilising savings, personal loans, money transfers, and international payments,” he said. “This is a significant revenue contribution for banks, but the risk is very low.”


Standard Chartered, meanwhile, is indirectly expanding in to the rural market. “By working with local small- and medium-sized enterprises (SMEs), the bank is helping small businesses to grow and, in turn, develop the local community where they are,” said Mr Taylor. “Our SME clients are our representatives. With their assistance, our bank is reaching out to various under-privileged areas of Vietnam.”


Indian Overseas Bank (IOB) is planning to upgrade its current representative office in Ho Chi Minh City to a branch. This follows a meeting between IOB’s Managing Director Nupur Mitra and the Governor of the State Bank of Vietnam.


The Masan Group (MSN) has borrowed $108 million over three years from JP Morgan to invest in its existing businesses and continue to carry out strategic M&A in Vietnam’s consumption and resources sector.


The Ministry of Finance reported last month that foreign unpaid debt held and guaranteed by the Vietnamese Government stood at $32.5 billion as at the end of 2010, up $4.6 billion over 2009. A total of $1.67 billion from the State budget was spent last year on repaying some loans, plus interest.


VietinBank is seeking approval from the government and the Ministry of Finance to sell between $500 million and $1 billion of bonds overseas. The sale is expected to come late in the third quarter or early in the fourth quarter of this year.


Prudential Vietnam last month reported new business premiums of $30 million during the first half of the year, an increase of 21.2 per cent year-on-year.


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