Banking sector eyes growth potential
Banking sector eyes growth potential
Vietnam Report JSC recently announced the nation’s Top 10 prestigious and effective public companies for 2021 with six banks including Vietcombank, ACB, VPBank, VIB, MBBank and Techcombank.
Over the past two years, these banks have been recognized by economists and investors for their financial strength and communication capacities, their growth potential, level of sustainable development, quality of corporate governance and the positions in the industries.
By the end of June 10, the banking industry accounted for 34 percent of HCMC Stock Exchange market capitalization with stock prices growing 18 percent in one month, 40 percent in three months, and 77 percent in six months, respectively.
The banking industry has been experiencing positive changes in recent years. Photo by Shutterstock.
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According to analysts, the above-mentioned banks have helped the banking industry affirm its position as one of the major pillars of Vietnam’s economy as the sector has contributed to regulating financial supply and demand for businesses and individuals, especially in the context of the economy being challenged by the Covid-19 pandemic.
A JP Morgan report showed Vietnamese banks offer the best combination of growth and return on equity (ROE) in ASEAN at 18 percent, double that of other countries in the bloc.
According to analysts, there are three growth drivers for the strong growth of the banking industry in the medium and long-term including the strength of the local economy, self-improvement and digital transformation.
Bright prospect of local economy
According to the World Bank, though Vietnam has been affected by the Covid-19 pandemic, the local economy still boasts many positive achievements, demonstrating its sustainable internal strength.
Meanwhile, Vietnam is among the few economies predicted to grow positively in the coming years with major drivers being domestic production, along with consumption and exports. The banking industry, with its role as a financial support for the whole economy, is also forecast to continue growing in resonance with the national economy.
At the same time, Vietnam’s population is expected to reach 120 million by 2050, an increase of over 20 percent compared to the present, with the middle-class proportion to double from 13 percent to 26 percent by 2026. That will open up golden opportunities for banks especially those that have considered retail business a core area.
Currently, Vietnam International Bank (VIB), Asia Commercial Bank (ACB), Saigon Thoung Tin Commercial Joint Stock Bank (STB), Vietnam Prosperity Joint Stock Commercial Bank (VPBank) and Military Commercial Joint Stock Bank (MBBank) are recognized as five leading private banks with top retail loans.
Notably, VIB and MBBank rank top with a compound growth rate of 49 percent and 31 percent respectively over the past five years. VIB is also considered the leading retail bank as its outstanding retail balance accounts for over 86 percent of the total outstanding balance, of which over 95 percent of retail loans have collateral.
Retail credit balance and CAGR of Top Joint Stock Commercial Banks from 2016 - 2020.
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The sector’s strong self-improvement
The banking industry has been experiencing positive changes in recent years. The dynamic business model, effective application of digital transformation and significant improvement in internal strength have brought impressive business results.
In addition, the State Bank of Vietnam has accelerated the application of international risk management standards. That has contributed to improving the transparency of information, enhancing the prestige of local banks to domestic and international investors.
The below table, sourced from audited financial reports of relevant banks from 2016 - 2020, mentions key financial indicators that clearly show the top six banks obviously stand out from median industry performance.
| Banks | % ROE | % ROA | % CIR |
% NPL & VAMC |
% CAR |
CAGR Profit before tax 2016-2020 (%) |
|
| VIB | 29.6 | 2.2 | 40 | 1.7 | 10.1 | 70 | |
| ACB | 24.3 | 1.9 | 42 | 0.6 | 11.1 | 55 | |
| VPB | 21.9 | 2.6 | 29 | 3.4 | 11.7 | 27 | |
| VCB | 21.1 | 1.4 | 33 | 0.6 | 9.6 | 28 | |
| MBB | 19.1 | 1.9 | 39 | 1.1 | 10.4 | 31 | |
| TCB |
|
3.1 | 32 | 0.5 | 16.1 | 41 | |
| Industry median | 18.8 | 1.6 | 39 | 1 | 10.8 | 39 |
Quickly embracing digital transformation
The banking sector’s strong growth in recent years is also attributable to the endless efforts of local banks in quickly embracing digital transformation. The banks that have actively participated in digital transformation will meet the increasing needs of customers while launching new products and services to both better serve their clients and increase business efficiency.
Among them are VIB, MBBank and Techcombank, which have launched digital product packages like digital accounts, bank cards and completely free digital banking services to better facilitate customers.
Amid the Covid-19 pandemic, digital solutions offered by these banks have assisted customers to make transactions and conduct basic banking services online instead of visiting branches or transaction offices.
Analysts said banks that have a clear digitalization strategy will soon boost their market share and quickly lead the sector in terms of growth rate and quality of services. This has happened in markets like the U.S., Australia and Singapore.
They added with the three above-mentioned growth drivers, sustainable development with many distinctive imprints of the six banks in the Top 10 is expected to be a bright spot for the banking industry and the Vietnamese economy in future.
