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Banking & Finance

Ahead of the pack

Released at: 17:49, 19/02/2018

Ahead of the pack

Photo: Viet Tuan

TPBank has been among the first to pay greater attention to digital banking.

by Duy Anh

Driven by the emergence of a more collaborative financial ecosystem, as regulators, banks, and consumers cooperatively take ownership in terms of designing products and technology services, several newer banks in Vietnam have applied technological change in the rapidly growing retail financial services environment faster and more extensively than others to capitalize on their competitive advantage. With a strong financial technology (fintech) foundation and a commitment to applying new technologies for automated, digital banking solutions and product development, one rising lender, Tien Phong Bank (TPBank), is unburdening itself from legacy systems and changing mindsets about digital banking, hoping to strike the right balance between risk and reward. 

Digital aspirations 

Available around the clock, endowed with user-friendly functions and located in residential areas and shopping malls, TPBank launched its new digital banking kiosk, LiveBank, in 2016, to take the lead in making use of disruptive technology and offer customers a channel for digital banking services. Developed by the UK and Bangkok-based Scale360, the digital branch enables TPBank customers to deposit cash, make basic loan applications, or chat with an advisor via an integrated video link. “The introduction of LiveBank has been an important element of our digital strategy,” TPBank’s Deputy CEO and Head of Retail Banking, Mr. Dinh Van Chien, told VET.

Founded just ten years ago by a shareholder group including the FPT Corp., Vietnam Mobile Telecom Services, and Vietnam Reinsurance (Vinare), the bank has differentiated itself by reengineering processes towards automation and digitization, digitizing service delivery channels for access via computers and mobile devices. Driven by the cost-effective deployment of artificial intelligence and robotics, leading to higher productivity at lower cost, together with a new layer of technology shifting the focus of productivity from being bank-centric to customer-driven, it was the first bank to provide electronic banking solutions for basic services as well as innovations to address customer needs through an e-counter.

Operating with a modest network of some 56 branches and offices, the bank now has more than 1.2 million customers registered for internet banking and conducts tens of thousands of electronic transactions each month, according to Mr. Chien. With a particular focus on digital banking, TPBank has also pursued a growth strategy centered on retail that mainly consists of motor car loans, mortgages, and consumer loans, which together with loans to small and medium-sized enterprises (SMEs) accounted for around 63 per cent of its loans as at June 30, 2017, according to figures from Moody’s Investor Service. 

Having surpassed its peers in total motor car loan disbursements in 2016 by capturing a 15 per cent market share, success in its automobile lending business can be credited to a strategy combining sales channels, efficient turnaround time, and compelling interest rates, while its low-fee or no-registration fee strategy strengthened its customer base as well as built up its digital channels. “At TPBank, some 80 per cent of customers have already rated LiveBank as easy to use, while 86 per cent are willing to use it as a channel equivalent to visiting a bank branch,” Mr. Chien said. 

Sustainable market share

As the 2020 ASEAN Economic Community (AEC) deadline approaches, with local banks set to face mounting pressure from higher requirements and foreign banks from developed markets where fintech has been happening big time and conditions are more mature, technological changes are being embraced throughout the region with a speed and scale that risk leaving many Vietnamese banks behind. Shifting the traditional banking model in this early stage of retail banking evolution means first movers like TPBank have no choice but to give up on the precious immediate benefits.

“I must admit that even though profits from LiveBank have not been substantial, it is an effective and cheaper replacement for traditional transaction offices,” TPBank CEO Mr. Nguyen Hung told VET. The bank is targeting to have at least 100 LiveBank kiosks around the country this year, on top the of the current 50, given that digital transactions already account for up to 80 per cent of the bank’s total. “We aim to improve our customer experience with better accessibility to products and services, as we need to adapt to fit in with our customer’s lifestyles,” he said. 
Until the benefits of digital banking fully kick in, TPBank’s profitability is likely to remain modest. While its latest unaudited financial statement showed a 70 per cent year-on-year rise in pre-tax profit in 2017, to VND1.2 trillion ($52.7 million), Moody’s noted that its return on assets (ROA) improved to just 0.8 per cent as at September 30 from 0.5 per cent as at end-2016, despite a 54 per cent year-on-year increase in net interest income due to loan growth. “Its profitability was nevertheless negatively affected by several factors, including credit provisions rising to 35 per cent of pre-provision income due to higher problem assets, while net interest margins decreased moderately to 2.38 per cent during the first half of 2017 due to intense competition for loans,” Moody’s Lead Analyst, Ms. Daphne Cheng, told VET.

Having aggressively pursued rapid loan growth of 65 per cent in 2016, the pace is believed to have substantially slowed down in 2017, to around 34 per cent, as pressure is exerted on the bank’s capital ratio. “We consider that TPBank’s asset risk is elevated due to rapid loan growth, though its asset quality moderately improved last year,” Ms. Cheng said. The bank’s tangible common equity to adjusted risk-weighted assets ratio (TCE/RWA) fell to 7.5 per cent as at June 2017 from 7.9 per cent in 2016 and 9.8 per cent in 2015, while adjusted problem loans fell to 4.1 per cent as at December 21 from 6.1 per cent as at September 30, a level that is lower than the 7 per cent average for the 15 banks in Vietnam rated by Moody’s.

Critically, TPBank, which has grown at 35-40 per cent annually in recent years, has consistently been able to keep its non-performing loan (NPL) ratio well below the required level set by the State Bank of Vietnam (SBV), ending 2017 with a figure of just 0.87 per cent; a slight increase of 0.01 per cent against 2016. “We will continue putting safety as the main priority, to capture a sustainable market share in the time to come,” Mr. Hung said, referring to its recent cooperation with two leading payment technology companies to bolster safeguards against fraudulent payments: Visa, to develop contactless Visa Paywave cards, and Napas, for domestic chip cards. 

Key to success

With the first fully digital bank, of CIMB Group Holdings Bhd, getting underway in January, Vietnam’s banking sector is set to witness something resembling mortal combat in digital retail banking as the 2020 AEC deadline kicks in. While none of TPBank’s local rivals are taking a route similar to LiveBank, many are pairing up with fintech companies to come up with new applications. “Obviously we are aware that the competition will only get fiercer in the coming years, given that a lot of big banks possess advantages in capital and scale, but we have determined what’s best for our bank to move forward,” Mr. Hung said. 

In a market where incomes are rising but most people still don’t have bank accounts, Mr. Hung said that TPBank, through its niche products, including the recently-launched “Quick Pay”, a QR code payment application for all customers, even those without a bank account, is looking to tap the 70 per cent of the population that isn’t using banking services to get into the Top 10 domestic Vietnamese banks over the next five years amid a car loan industry that, while enjoying early growth, is expected to mature by 2025. 

It might be one of the few medium-sized banks in the country with a modest network and consolidated assets of just $5 billion as at September 30, but TPBank is definitely among the most popular local lenders for foreign investors. In December, the Finland-based PYN Elite Fund made its largest investment to date since arriving in Vietnam in 2013, spending $40 million for the remaining 5 per cent in TPBank, joining Japan’s SBI Holdings, with 19.9 per cent, and the World Bank’s International Finance Corporation, with 4.99 per cent. “Looking at each bank individually, TPBank was the one that could turn conservative management and innovative ideas into profit,” PYN Elite Fund’s Portfolio Manager Mr. Petri Deryng told VET. “What I like most is that with limited resources, the bank’s leadership doesn’t try to do everything.” 

Industry observers believe TPBank’s leadership understands how to fill its entire foreign ownership cap by stepping away from the problems that led to a system-wide lack of transparency regarding the true level of problem assets. “We view as positive that the bank has decreased its related-party exposure to 14 per cent of TCE at end-2016 from 27 per cent the prior year,” Ms. Cheng said, adding that while these loans appear to be well secured according to the bank, past experience suggests that related-party exposures are generally viewed as negative due to corporate governance concerns. 

Apart from financial support, which would be credit positive for the bank’s capitalization amid rapid loan growth, according to Moody’s, what’s more important about the PYN Elite Fund deal is the recognition of the bank’s business philosophy. “We can commit that we will try to support the bank’s upcoming steps,” Mr. Deryng said. “However, I think the bank will not need much advice at this time or even soon. Being conservative in every move is the key to success, and with this strategy, both the bank’s revenue and net profit will grow well during the next five years.”  

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