Vietnam’s banks urged to maintain CASA ratio to control funding costs

While the expansion of asset yields becomes more limited as the transition towards retail lending slows down and competition intensifies, the control of funding costs serves as a driver of interest income growth.

In order for Vietnamese banks to control funding costs, maintaining the current account and saving account (CASA) ratio will play an important part. This is a low-cost funding source (with a cost of only 0.1-0.5% annually) and with an adequate growth rate, and able to offset the increase in expenses for term deposits and bond issues, according to Viet Dragon Securities Company (VDSC). 



Since 2018, stricter regulations on funding (Basel 2, the ratio of short-term capital to fund medium and long-term loans) have been expected to have a negative impact on banks' net interest margins as banks will have to push long-term bond issuance as well as compete for customer deposits by raising interest rates.

In VDSC’s watch list, the trend of increasing funding cost can be found most clearly in TienPhong Bank, Vietnam International Bank (VIB) (those boosted lending most strongly recently), followed by Bank for Investment and Development of Vietnam (BIDV), Military Bank (MB Bank), Vietnam Prosperity Bank (VP Bank), and Ho Chi Minh Development Bank (HD Bank).

While the expansion of asset yields becomes more limited as the transition towards retail lending slows down and competition intensifies, the control of funding costs serves as a driver of interest income growth.

According to VDSC’s report, BIDV, VP Bank, MB Bank, and VIB are banks with a clear trend of decreasing CASA since the end of 2017, coupled with the upward move of funding cost. Meanwhile, CASA increased strongly in Vietnam Technological and Commercial Joint Stock Bank (Techcombank), leading to an encouraging improvement of funding cost in the first half of this year.

To increase CASA, many banks around the world has developed a modern payment management system (transaction banking), capable of serving customers’ needs to push the number of transactionsettlements. According to Nielsen's Personal Financial Supervision Report in the fourth quarter of2018, the most important factors for banking services are convenience, ease, agility and transaction fees. As such, a platform that can satisfy those criteria will encourage customers to make transactions, which will help increase the demand deposit balance accordingly.

Effort to push CASA ratio by promoting digital payment

In Vietnam, digital banking has become a trend amongst banks, with various fee promotion initiatives to encourage customers to use digital payment, thereby improving CASA.


 

Techcombank can be considered the first private bank to focus on building digital and payment advantages with the goal of becoming the main transaction bank. Since September 2016, many fee promotion policies for customers have been applied such as free transactions on e-banking/mobile banking, free account management fee if the average monthly balance reaches VND2 million (US$86.16), or unlimited cash back. 

Thanks to these policies, Techcombank has risen to the top position in mobile payment with a 33% market share by the first half of 2019. The number of customers using Techcombank e-banking during the period was more than two million, nearly doubled year-on-year. Along with that, CASA improved continuously from 22.7% in 2016 to 30.4% at the end of the second quarter of 2019.

Many other private banks also adopted their own fee exemption campaigns. In 2018, VIB has a policy of free transfers and cash withdrawals for new customers or payment accounts satisfying a certain minimum account balance. The bank also offers no services fee and cash back for customers of some new account packages. Similarly, in 2019, Asia Commercial Bank (ACB) has a fee exemption campaign on mobile banking applications (definite or indefinite depending on the account classification). 

However, it should be noted that by these initiatives banks will have to sacrifice a part of their service fee income for CASA ratio. Fee exemption policy limits the growth of settlement income and refund policy escalates the growth of settlement expense. For Techcombank's case, income from payment activities in 2018 increased by 20.3% year-on-year while the cost from payment activities increased by 86.5% year-on-year. The corresponding growth rates for the first half of 2019 are 22% and 152.8%. 

As a result, Techcombank's net income from payment only increased insignificantly compared to other banks. Also according to Techcombank, the current cost of funds saved by increasing CASA mostly equals the increase in payment costs, which means there is no direct profits from these initiatives. As such, potential gains should be indirect and in the long run, such as expanded customer base and strengthened customer loyalty.

Currently, MB Bank and Joint Stock Commercial Bank for Foreign Trade of Vietnam
(Vietcombank) are two banks with the highest CASA ratio and lowest funding cost in the sector. 

However, the competition for CASA will become more intensive because of deeper penetration of private banks. The investment in digital banking and promotion initiatives, on one hand can support CASA ratio, but are also likely to raise operating cost and settlement expense. Therefore, banks will need to have effective investment and competitive strategies to maintain CASA while securing long-term benefits. Hanoitimes

Nguyen Tung

Vietnamese banks apply AI in their products

Vietnamese banks apply AI in their products

Deputy CEO of VietinBank Tran Cong Quynh Lan believes that AI is important for banks, but how to apply it remains a difficult question.

How big are Vietnamese banks?

How big are Vietnamese banks?

The 11 top commercial banks have total assets of over $10 billion, while nearly 15 smallest banks have l total assets of less than VND100 trillion. The rankings of banks have changed a lot over the last decade.

VN banks warned about risks of real estate corporate bonds

VN banks warned about risks of real estate corporate bonds

The State Bank of Viet Nam (SBV) has instructed local banks to better control risks in corporate bond investment, especially bonds of real estate firms.  

 
 

Other News

.
COVID-19 threatens property brokers with unemployment
COVID-19 threatens property brokers with unemployment
BUSINESSicon  22/03/2020 

The COVID-19 pandemic has become a new challenge for property brokers who have been facing many since last year due to the low supply in the market.

Commercial centres deserted in Hanoi amidst COVID-19 fears
Commercial centres deserted in Hanoi amidst COVID-19 fears
PHOTOSicon  22/03/2020 

With fears surrounding the potential spread of COVID-19 gripping Hanoi, the majority of commercial centres located in the capital have been increasingly quiet in recent days with local people cautious about going outside.

VN shrimp segment above water
VN shrimp segment above water
FEATUREicon  22/03/2020 

Despite the complexities of COVID-19, shrimp exporters and processors still see a bright future ahead thanks to new markets, and boosting exports to traditional markets which have cut imports from China.

Vietnam makes it into top 5 economic freedom gainers in Asia-Pacific region
Vietnam makes it into top 5 economic freedom gainers in Asia-Pacific region
BUSINESSicon  22/03/2020 

With the strides in opening its economy, Vietnam has improved its ranking to 105th on the 2020 Index of Economic Freedom by The Heritage Foundation.

Firms to adhere to anti-dumping law
Firms to adhere to anti-dumping law
BUSINESSicon  22/03/2020 

Pham Duy Khuong, managing director of ASL Law, talked about some important contents related to anti-dumping laws that foreign companies should pay attention to when digging into the Vietnamese market.

VN firms resolute in business goals despite COVID-19 impacts
VN firms resolute in business goals despite COVID-19 impacts
BUSINESSicon  22/03/2020 

Many companies have performed well in the first two months of the year despite the COVID-19 outbreak and insist on keeping business targets unchanged.

VN rail sector finding way back on track
VN rail sector finding way back on track
BUSINESSicon  22/03/2020 

Despite strong efforts, state-owned Vietnam Railways may face a downturn this year due to the COVID-19 pandemic and challenges from legal barriers. 

State capital commission to work with struggling mega-projects
State capital commission to work with struggling mega-projects
BUSINESSicon  21/03/2020 

The Commission for the Management of State Capital at Enterprises (CMSC) must continue to support managers of 12 struggling mega-projects under the Ministry of Trade and Industry with the State’s capital investment.

Real estate firms calls for Government support
Real estate firms calls for Government support
BUSINESSicon  21/03/2020 

The HCMC Real Estate Association has urged the Government to add the property industry to the list of those affected by the COVID-19 outbreak and are eligible for a five-month postponement of VAT and land-use fee payments.

EU, US yet to limit garment imports from Vietnam due to COVID-19
EU, US yet to limit garment imports from Vietnam due to COVID-19
BUSINESSicon  22/03/2020 

Minister of Industry and Trade Tran Tuan Anh said on March 20 that EU and US authorities have yet to limit the import of garment products from Vietnam.

Textile and footwear firms go local to survive pandemic
Textile and footwear firms go local to survive pandemic
BUSINESSicon  21/03/2020 

While most textile and footwear enterprises in Vietnam struggled to find alternative sources of raw materials to maintain production, some with local sources have survived during the COVID-19 pandemic.

US has no plan to suspend import of Vietnamese garment-textiles: ambassador
US has no plan to suspend import of Vietnamese garment-textiles: ambassador
BUSINESSicon  21/03/2020 

The US Government has no plan to suspend the import of Vietnamese garments-textiles, said Vietnamese Ambassador to the US Ha Kim Ngoc.

Covid-19 crisis can offer opportunity for Vietnam to expand role in global supply chain
Covid-19 crisis can offer opportunity for Vietnam to expand role in global supply chain
BUSINESSicon  22/03/2020 

The difficulties in the global pandemic are opportunities for Vietnam to expand its role in the global supply chain.

Vietnam’s fish, shrimp exports no longer can enjoy preferences from the US
Vietnam’s fish, shrimp exports no longer can enjoy preferences from the US
BUSINESSicon  23/03/2020 

Vietnam’s seafood industry has received bad news: it can no longer enjoy the preferences offered by the US to developing countries.

BUSINESS NEWS HEADLINES MARCH 21
BUSINESS NEWS HEADLINES MARCH 21
BUSINESSicon  21/03/2020 

State Bank approves restructuring plan for Saigon Commercial Bank

BUSINESS NEWS HEADLINES MARCH 20
BUSINESS NEWS HEADLINES MARCH 20
BUSINESSicon  20/03/2020 

Garment export value hits US$5.3 billion during Jan-Feb

EVFTA expected to create great pressure on domestic logistics firms
EVFTA expected to create great pressure on domestic logistics firms
BUSINESSicon  20/03/2020 

The expected execution of the EU-Vietnam Free Trade Agreement in 2020 will create great pressure on Vietnamese logistics businesses, insiders said.

Ministry cuts, exempts fees of 15 securities services to support stock market
Ministry cuts, exempts fees of 15 securities services to support stock market
BUSINESSicon  20/03/2020 

The Ministry of Finance has cut the fees of nine securities services and exempted fees for six others as from March 19 as part of efforts to support the stock market amid the negative impact of the COVID-19 epidemic.

How are Vietnamese businesses managing during the Covid-19 crisis?
How are Vietnamese businesses managing during the Covid-19 crisis?
BUSINESSicon  20/03/2020 

While tourism, transportation and F&B sectors are suffering heavily from Covid-19, the impact on other business fields has been less severe.

Shopee, Lazada struggle to dominate Vietnam’s e-commerce market
Shopee, Lazada struggle to dominate Vietnam’s e-commerce market
BUSINESSicon  23/03/2020 

Shopee and Lazada have successfully controlled most of the Southeast Asian market. But in Vietnam, Tiki, Sendo and The Gioi Di Dong are preventing them from doing so.

 
 
 
Leave your comment on an article

OR QUICK LOGIN