According to experts’ forecast, lending to small and medium enterprises (SME) would continue to be the growth engine of the banking industry in the last months of 2019.
Change the credit structure
According to Phan Thi HienAnalyst of VNDirect Securities Corporation (VNDS), a positive change compared to the previous credit boom period was that the current demand for credit mainly came from individuals and private companies, including SME. In the past, most of the credit was granted to real estate and state-owned enterprises (SOE). Currently, the proportion of credit loans to SOE dropped sharply to 6.4 percent in 2018, compared to 25 percent to 26 percent in the period of 2011 to 2013.
The rapid growth of individual lending was the main factor driving credit growth across the banking industry, leading to a change in credit structure.
For example, Vietnam Technological and Commercial Joint-Stock Bank (Techcombank) adopted an ecosystem approach, by approaching large private corporations, such as Vingroup, then expanding access to the entire supply chain of corporations. Thereby, Techcombank then provided credit and banking services not only to Vingroup but also to other large corporations. Also, this bank offered personal loans, deposits, insurance and payment products to customers, as well.
In addition to financing the supply chain, the ecosystem approach offered Techcombank the opportunity to cross-sell non-credit products. The bank could access large corporate clients of large corporations to promote retail products such as credit cards, insurance and corporate bond brokers.
Credit boom for retail and SME lending
According to experts, the shift to retail and the SME lending with higher interest rates would help banks improve asset yields in the context of SBV tightening monetary policy.
Banks with a significant customer base, extensive networks, and low retail penetration would stand a better chance to seize opportunities in retail lending.
For example, the Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank) was accounting for about 30 percent market share in the number of credit cards issued and 44 percent market share in credit card payment sales in 2018. That gave the bank a large retail customer base to cross-selling other products such as home loans, and so on. Besides, that Vietcombank had a vast network and large corporate customers made it convenient to promote retail and SME.
Vietcombank was one of the first three banks in Vietnam to meet Basel II in 2019. Therefore, the bank’s credit growth limit may be higher than the overall target of the whole system of 14 percent. Vietcombank was aiming for a credit growth of 15.0 percent in 2019 mainly focusing on the SME segment.
According to Hien, there was still a place for credit growth in the private enterprise segment and consumption. In terms of consumption segment, household credit penetration at 47.9 percent of GDP as of December 2018 was still lower than that of countries like Thailand (78.6 percent) and Malaysia (82.1 percent), while these countries had the credit levels on GDP similar to Vietnam.
Regarding the SME business segment, the number of newly registered businesses continued to grow strongly, which was a factor that helped banks boost credit for these subjects. Distribution and sales would be essential factors for banks to gain market share in this segment. Accordingly, banks with extensive networks, large customer groups, such as Vietcombank, Techcombank, VPBank, etc, would have more advantages.
Can Van Luc, a finance and banking expert, said that in the last months of 2019, SBV continued to tighten monetary policy with a lower credit growth target (14 percent). Therefore, the credit capital at the end of 2019 would also be more limited. However, banks’ credit flows would continue to push into retail and SME businesses in the last months of this year. That would be the profitability of the whole system and the risk was still under control.
