Customer needs steer bank trends

Local banks will have to adapt to meet the changing needs of customers in the globally-integrated marketplace

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, while a number of favours that are working towards the local financial market’s advantages, such as reasonable asset quality and reliable liquidity, according to Alex Kwiatkowski, senior marketing strategist for Banking & Digital Channels at Misys, challenges remain within the financial market, particularly in the banking sector.

“Things that are perhaps the challenges, yet to be overcome, at the macro level, which are around the capital levels and the provisioning for loan losses, which I think still causing some concerns 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 thus 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 Misys, the pressure on the banking industry could be coming from bank customers.

“It would be driven by their customers Misys. As the [local] economy travels from being domestic orientated customers requirements will become more sophisticated,” said Edmondson.

“I think where we are in Vietnam now is Vietnam-based companies are taking the first one or two steps to set up operations and business abroad. It would be a natural place for them to look to the banks who serve them domestically to provide support as they expend internationally,” he noted.

According to Edmondson, as the market expands internationally, Vietnamese bank customers will expect different kind of supports from local banks, in terms of advice, cash and liquidity and treasury services (due to currency volatility). Banks, as a result, will depend on what their customers demand and that will be shaping 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 regulators have taken the step of issuing new banking licenses to start-up banks to foster accelerated delivery of digital financial services to consumers,” said Rick Woodham, chief technology officer for Asia Pacific at provider of banking and payments technologies FIS.

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