Domestic banks to face competition from foreign rivals after EVFTA

Transactions at Vietcombank (Photo courtesy of Vietcombank)

This information was released at the Top 10 most prestigious commercial banks in Vietnam in 2020 by Vietnam Report (VNR).

According to VNR, more than 96% of surveyed experts and banks said one of their biggest challenges was the increasing trend of bad debts due to impacts of the COVID-19 pandemic after implementing debt restructuring, extending and freezing.

With loans that were ineligible for debt restructuring, banks must convert them into non-performing loans (NPLs) as prescribed, resulting in pressure of decreasing interest and provisioning, thereby reducing profits.

With debts that could be extended and restructured, these could be potential bad debts for commercial banks in the long term. If the health of the economy does not improve soon, banks would be at risk of losing capital.

According to calculations by the State Bank of Vietnam, if the disease was controlled in the first quarter of this year, the NPL ratio of the on-balance sheet, debts sold to Vietnam Asset Management Company (VAMC) and classified debt would be at 2.9-3.2% by the end of the second quarter and 2.6-3% at the end of the year.

The survey said although Vietnamese commercial joint stock banks have maintained their positions, the competitive pressure has been increasing as the country opens its market.

In addition, the emergence and development of financial technology companies (fintech) and technology giants (big tech) in providing financial services are putting pressure on banks. Banking business is forecast to be increasingly difficult if they do not quickly catch up with technology trends.

Although the banking industry has been at the forefront of applying information technology in operation and management, most banks have built a digital transformation strategy to increase customer experience, addressing the growing needs of customers. Most Vietnamese banking systems still operate traditionally with their transaction offices and mostly digitise internal processes.

The decision to invest in infrastructure of technology systems to meet changes in the current trend of shopping and consuming services has been a problem for bank leaders as this is a big investment while the effect is difficult to evaluate.

The survey said there are four biggest challenges in implementing digital banking include network security risks, lack of policies, overlapping priorities and lack of skilled labourers.

Nearly a half of experts and banks in the survey also said the decreasing credit demand has been one of the challenges for the sector.

Due to the impact of COVID-19, although Vietnam has well controlled the pandemic, the world is still experiencing outbreaks, affecting the production and business situation of domestic enterprises. It was the reason that businesses still do not need to borrow new capital although lending interest rates have fallen sharply.

The pressure on capital raising on banks in 2020 is still relatively high, requiring them to have much higher equity capital than before to ensure effective risk management according to Basel II standards, especially banks with State capital. Profits of some banks declining in the context of increased risk of bad debt would significantly affect capital safety, increasing the pressure of raising chartered capital.

Vietnam Report said the key factors for the success of banks are human resources and technology. The digital revolution in the banking sector has required staff to regularly update information and develop creative policies.

Top 10 most prestigious commercial banks in Vietnam in 2020:

    Joint Stock Commercial Bank for Foreign Trade Vietnam (Vietcombank)
    Vietnam Joint Stock Commercial Bank for Industry and Trade (Vietinbank)
    Vietnam Technological and Commercial Joint Stock Bank (Techcombank)
     Bank for Investment and Development of Vietnam (BIDV)
    Vietnam Prosperity Joint Stock Commercial Bank (VPBank)
    Military Commercial Joint Stock Bank (MBBank)
    Vietnam Bank for Agriculture and Rural Development (Agribank)
    Asia Commercial Joint Stock Bank (ACB)  
    Tien Phong Commercial Joint Stock Bank (TPBank)
     HCM City Development Joint Stock Commercial Bank.