Customer needs steer bank trends
Customer needs steer bank trends
To encourage foreign investment in its banking sector, Vietnam will need to clear up the remaining challenges and let bank customers drive direction and future banking demand.
During the 17th Asian Banker Summit held in Hanoi last week, Prime Minister Nguyen Xuan Phuc noted that the local banking sector has always been vital for the country’s growth, and that the sector itself has undergone massive reforms in recent years in a bid to meet the demand of a rapidly growing economy.
“Vietnam warmly welcomes and fully supports the theme of the conference – The New Breakthrough, which truly reflects a long-term vision and commitment for innovative changes, moving towards an effective and dynamic banking and financial market within the nation,” said Phuc.
The local banking sector, according to State Bank of Vietnam (SBV) Governor Le Minh Hung, will continue adapting and addressing challenges to integrate into the regional and global financial system.
“We yearn to see participation from foreign investors in our banking restructuring process and I believe such a process will benefit us all,” said the newly-appointed governor.
Before foreign investors can flock to the sector, the Vietnamese banking industry needs to identify the key pressures being faced and determine what will in fact drive the industry forward.
According to experts, the sector is facing significant pressure from both the government and customers, and in the future, it could well be the bank’s customers who decide the industry’s fate and where local banks will be.
From a macro-economic view, Vietnam is in a rather stable development phase, with a good economic growth achievement of 6.68 per cent last year and possibly the same for 2016.
Nevertheless, according to Alex Kwiatkowski, senior marketing strategist for Banking & Digital Channels at Misys Financial Software, although a number of favourable factors are working towards the local financial market’s advantages, such as reasonable asset quality and reliable liquidity, challenges still remain within the financial market.
“Things that are perhaps yet to be overcome at the macro level, such as capital levels and the provisioning for loan losses, I believe is still a cause for concern among the rating agencies,” said Kwiatkowski, in an interview at the Asian Banker Summit held in Hanoi last week.
Kwiatkowski went on to say that the SBV currently has “so-called” control over how the system needs to operate, relative to how the economy needs to grow. SBV then leaves it to competent banks to “decide on how they would respond to market opportunities, how they are going to reduce the loan loss provisions, and how they will engage with customers through a range of challenges”.
Local banks will have to juggle cost reductions, expansion into new areas, and figure out how to protect themselves from existing institutions. Competition could come from banks outside of Vietnam, through mergers and acquisitions, or start-ups. “Financial services aren’t exclusively preserved for banking, and they can also come through other forces or agencies, for example, the telco operation offering mobile money,” added the London-based senior strategist.
Meanwhile, according to Brian Edmondson, global head of Trade and Working Capital Finance at Mysis, the pressure on the banking industry could come from bank customers.
“It may be driven by where their customers are located. As the [local] economy moves forward, customers are more sophisticated, coming from larger international and multi-national corporations,” said Edmondson.
“I think Vietnam-based companies are taking their first baby steps in setting up operations and businesses abroad. When it comes to their banks, it would be natural for them to come back to the banks who serve them domestically,” he noted.
According to Edmondson, as the market expands internationally, Vietnamese banking customers will expect different support from local banks, in terms of advice, cash and liquidity, and treasury services (due to currency volatility). Banks, as a result, will have to adapt to new trends and focus on what their customers demand, and this will be a huge factor shaping the future of the banking industry in the years to come.
Local regulators, meanwhile, can give a hand in shaping the future of the banking sector, via enhancing transparency within the system and let bank customers have a say on what they really want with their banks.
“Some of the regulators, globally, have taken steps to not issue license to banks should they not moving fast enough to get what their customers really want,” said Rick Woodham, chief technology officer for Asia Pacific at provider of banking and payments technologies FIS.
