By the end of June 2020, the credit growth of the entire banking sector was only 3.26%, equivalent to half of the same period of last year, and still far from the target of 14 percent for the whole year. The impact of the Covid-19 epidemic has slowed down the lending to most sectors. Banks, thus, can hardly expect to boost profit by increasing net interest income.
In fact, even before the Covid-19 outbreak, the credit activities, despite still accounting for a large proportion, had gradually reduced the attractiveness to banks as the profit margin heavily depend on the cost of capital, while they also pose a risk of bad debts.
Instead, banks are shifting to increasing revenue from service segment, which is considered more stable and safer when focusing on exploiting available customers. In some banks, the growth of net interest income, therefore, is also lower than the growth of income from service activities.
Among private joint stock banks, Vietnam Prosperity Commercial Joint Stock Bank (VPBank) is one of the banks with remarkable transformation speed. The net profit from services of the parent bank in the first half (H1) of 2020 grew by nearly 42 percent compared to H1 2019, reaching 1.439 trillion dong.
Accounting for the largest proportion of the bank’s non-interest income was the income from payment services with more than 500 billion dong, followed by the sales of insurance with nearly 320 billion dong; while other services brought in a profit of nearly 970 billion dong.
The contribution of net profit of services to total revenue of the parent bank, thus, also grew from 13 percent in H1 2019 to 15 percent in H1 2020, thereby reducing the dependence of banks on income from interests.
Nguyen Duc Vinh, general director of VPBank said that the contribution of service segment in VPBank’s parent bank is taking the lead among private joint stock banks. According to Vinh, starting from 2019, VPBank has restructured in the direction of focusing on increasing non-interest income through the strategies to boost banking, payment, insurance and card transactions.
In H1 2020, VPBank recorded nearly 1.3 million customers registering to use digital banking, up by 30 percent compared to the same period of 2019. The ratio of active customers was also high at 75.2%. Nearly 97 percent of the transactions were made via digital and automated channels, while only 3.1 percent of the transactions were made over the counter, showing the preference of customers for e-trading solutions.
In addition, the bancassurance activities also brought in nearly 320 billion dong of income to VPBank in H1 2020, up by 14 percent over the same period of 2019.
VPBank’s leader said that the driving force for the sharp rise of the bank’s service income is closely linked to VPBank’s digital transformation. Through a modern technology platform, VPBank is develop diversified services, create new applications, increase the transaction processing speed for customers, thereby increasing fee collection from credit card transactions and payments.
This move of VPBank is in line with the policy of the State Bank of Vietnam (SBV). The government’s Scheme to restructure credit institutions associated with bad debt settlement in 2016 2020 period, and the Strategy for the development of the banking sector to 2025 with a vision to 2030 also set a target to have about 12-13 percent of service income in total income by the end of 2020 and 16-17 percent by the end of 2025.
“Currently, VPBank is still at the beginning of the process of promoting fee revenue, and there is still available room for growth. We expect the revenue from fees will continue to increase in the second half of the year, and reach 30 percent for the whole 2020,” said Vinh.
