Vietnamese banks seeking to shift from business borrowers to individual customers amid ample deposits and low credit growth say they're battling poor customer loyalty and competition from foreign credit institutions.
At the recent general shareholder meeting of the SHB commercial bank, Board Chairman Do Quang Hien said they plan to develop their issuance of personal loans and mortgages, claiming that "retail banking" will make up some 15 percent of total profits this year. That ratio is only expected to increase.
An official from Vietcombank said it will increase its focus on individual customers, although most of its profits continue to come from business loans.
Banks will find it hard to expand lending to businesses as demand remains low and companies lack collateral, he said.
“Banks could tap retail banking, as the market is very large," said the Vietcombank official. "Interest rates offered to individuals are also higher than those offered to enterprises.”
Nguyen Van Binh, Governor of the State Bank of Vietnam, said that loans expanded by just 3.52 percent in the first half of the year, despite an annual government credit growth target of 12-14 percent.
Banks have emulated one another in offering incentives to lure individual customers. Some have offered interest rates of just 5-7 percent on loans for personal consumption, which are even lower than deposit rates of up to 8.3 percent, and require no collateral.
VPBank ask individual customers to pay 5 percent interest on real estate loans during the first year and 5.5 percent for the first 6 months on automotive loans--noting that the rates rise in subsequent months. HDBank also offers interest rate of 6.8 percent in the first 3 months to individual consumers.
Banks have accelerated incentives at shops and supermarkets that offer discounts to customers who pay with credit cards or no fees for those who open individual accounts or sign up for credit and debit cards.
Economist Nguyen Tri Hieu said banks used to focus mainly on lending to businesses, due to the large potential profits. However, the difference between lending and deposit interest rates recently narrowed, making business lending less deisrable.
In addition, have grown more cautious about lending to businesses, due to the high volume of bad debt generated by property firms and manufacturers during the economic slowdown. In this cautious atmosphere, smaller-scale lower-risk retail banking has become more desirable, he said.
And Vietnam offers plenty of room for growth.
According to the Vietnam Banking Association, just 20 percent of Vietnam's population currently has bank accounts.
Economist Hieu said cash remains king in Vietnam creating a major challenge for banks hoping to move into savings and transactional accounts, home mortgages and personal loans, debit cards, and credit cards.
Due to the low popularity of online banking, developing the retail banking sector requires banks to maintain a large staff, according to Vice General Director of the Military Bank Nguyen Thi An Binh.
The leader of the Ho Chi Minh City lender said his bank started recruiting hundreds of employees to fuel the growing retail sector early this year.
Low customer loyalty remains another major challenge. According a global consumer banking survey recently released by the auditing and financial consultant EY, Vietnam has the highest ratio of customers willing to change banks in the Asian Pacific region.
Up to 65–77 percent of local respondents are ready to close their accounts and change to another bank while the common global rate is around 50 percent, and 10–20 percent in Australia and Japan.
Keith Pogson, Manager of EY's Financial Services in the Asia Pacific region attributed poor loyalty to the fact that there are too many banks in Vietnam.
He noted that Australia and Japan, for example, have simple banking systems controlled by three or four major banks, leaving customers with little choice. Vietnam is currently home to some 40 banks, and myriad financial companies.
Another reason, he said, is the poor quality of service at Vietnamese banks. According to the EY's survey, which considered responses from 32,600 retail banking customers across 43 countries, including 800 respondents in Vietnam, half of local customer have closed their accounts or left their banks due to communication issues with staff.
Some customers also noted that the quality of Vietnam's ATM and banking services isn't commensurate with current fees.
Local banks now hold 90 percent of the market share in retail services due to their larger networks. However, foreign banks like ANZ, HSBC, and Standard Chartered Bank have planned to draw off Vietnam's most desirable customers.
An official from ANZ said Vietnam is a key market for the bank. Last year, its retail sector saw double-digit growth by focusing on medium and high-income customers.
According to the State Bank of Vietnam, retail banking will become the focus of foreign banks after 2015.
Do Minh Toan, general director of Asia Commercial Bank (ACB) said local banks should diversify their services, improve their technology and increase risk management to improve their competitveness.