There's no longer such a considerable difference between local and foreign banks in retail banking.
Competition in Vietnam’s retail banking sector has become more intense with the aggressive participation of local banks. With strong determination and a proper investment direction, domestic players are gradually forcing their foreign counterparts to expend more effort on competing for market share.
Instead of just focusing on improving the quality of their products and services, foreign banks are now moving to offer products and services at a competitive price level, which is a key criterion in attracting Vietnamese customers. Domestic banks, meanwhile, also recognize the role retail banking can play in ensuring their financial security. They are therefore also spending much time and effort on developing the segment.
In 2009, when foreign banks such as HSBC, ANZ, and Standard Chartered Bank were given permission to officially become wholly foreign-owned banks in Vietnam, many insiders believed they would dominate retail banking in the country with their experience and financial capacity.
The gap between local banks and foreign banks, however, in terms of product and service quality and management capacity, among others, has gradually been bridged. Competition between domestic banks and foreign banks are being pushed to a new level. They don’t compete on product numbers, as previously, but focus instead on product quality and price. Personal banking services, including home loans, car loans, and consumer loans, as well as credit cards, provide added value that attracts customers.
Mr. Duong Duc Hung, Head of Retail Banking at ANZ Vietnam, said that there are many factors in creating advantages and finding success in retail banking, such as distribution networks, administration, human resources, and product and service quality.
It’s become harder to determine whether local or foreign banks perform better in the market. What’s important is that all banks have clear strategies for targeted customers, products, and distribution channels, etc. “In other words, banks need to choose a pitch that is most consistent with their advantages,” Mr. Hung said.
From the perspective of a domestic commercial bank, Mr. Phung Duy Khuong, Head of Retail Banking at VietinBank, appreciated the experience of foreign banks in developing retail banking, which they gained in many countries around the world. “This is a major advantage in their competition with local banks, as foreign banks can adapt these experiences to the Vietnam market,” he said.
Local banks, however, also hold advantages in nationwide branch networks and a diverse customer base. “It is difficult to dominate the competition in retail banking because local and foreign banks are strong in different ways,” Mr. Khuong said.
According to financial and banking expert Mr. Can Van Luc from BIDV, the competition for market share in retail banking is exciting. While foreign banks hold advantages in experience, their business operations and results are more effective, and they also have better risk management systems. Besides extensive branch networks, local banks are better at understanding the local market and the habits of Vietnamese consumers. “Although the gap between domestic banks and foreign banks is gradually narrowing, foreign banks are still slightly better not only in experience, competence and management skills, but also in the quality of their products and services,” Mr. Luc said.
Openings for domestic banks
Local banks still have opportunities for gaining more market share in retail banking, he continued, because the target customers of local and foreign banks are so different. While foreign banks target mid- and high-end customers, local banks cater to a range of different customers, including low-income earners like workers and students as well as mid- and high-income earners. “Such advantages in customer range help local banks more actively compete in retail banking,” he said.
Apart from focusing on improving the quality of their products and services, local banks have also accelerated the restructuring of their entire systems, including re-designing indoor and outdoor furniture and fittings in branches and headquarters and adapting modern trading methods that are closer to the thinking of their customers. In the last two years local banks have also begun to acquire financial companies. There have been some notable deals, including HDBank picking up Société Générale Viet Finance, VPBank acquiring the Vietnam National Coal - Mineral Finance Company, Vietnam Chemical Finance JSC being taken over by Techcombank, SHB merging with the Viettel - Vinaconex Finance JSC, and Maritime Bank taking over the Textile and Garment Finance JSC.
Since the beginning of this year major banks with State-owned capital such as Vietinbank and BIDV have also targeted acquiring financial companies as an important step in gaining market share in the retail banking segment. According to a representative from the Vietcombank Securities Limited Company, M&A deals between banks and financial companies will help banks develop customer databases and boost retail banking, as financial companies primarily served personal customers with consumer lending - a market targeted by commercial banks in their strategies to develop their retail banking activities.