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Banking & Finance

Preserving faith

Released at: 08:33, 25/07/2014

Preserving faith

Vietnamese customers have less trust in banks that previously and clear retention strategies are the only way to stop a potential exodus.

by Hai Bang

    As the focus now shifts to just how badly local banks have been hit by non-performing loans (NPLs), a matter largely overlooked is how these difficulties have affected the attitude of customers towards banks. A survey of 32,600 retail banking customers in 43 countries by Ernst & Young (E&Y), including 776 in Vietnam, suggests that Vietnamese banks have failed to build customer loyalty.

Less loyal

    Needless to say, a strong banking system that has the trust of customers is essential to a country’s economy and customer satisfaction and loyalty are critical elements in the long-term business growth and profitability of banks in a market. Customers must be confident that when they deposit money in a bank and conduct financial transactions that these will be completed in a routine manner without any risk of loss whatsoever.

    The survey’s findings on customer loyalty are particularly striking and what local banks need to take note of is that 65 to 77 per cent of respondents in Vietnam said that they were ready to close their bank accounts and change to another bank. Vietnam has the highest percentage of customers willing to change banks in the Asia-Pacific region, with the global rate being around 50 per cent and 10 to 20 per cent in Australia and Japan. This represents a major problem not only for the local banking sector but also for individual banks, because people who lack confidence in their bank will also be less loyal.

    Perhaps unsurprisingly, the apparent lack of loyalty among Vietnamese customers is due in part to the large number of banks in the country, which offer more or less the same services. “There are too many banks here,” said Mr Keith Pogson, Managing Partner of E&Y’s Financial Services, Asia Pacific region. He noted that Australia and Japan, for example, have three or four large banks, giving customers little in the way of choice. The number of banks in Vietnam is close to 40, in addition to several financial companies and similar providers.

    Banks in other countries provide customers with a range of different products, from pensions, savings and credit to mortgages and insurance. This may explain why people in these countries do not change their banks so readily, as they must also then change all of their related service accounts. The increasing switch rate in Vietnam indicates that the products provided by retail banks in the country remain simple and banks primarily compete with each other in securing deposits.

    From their perspective, banks may well believe they aren’t doing anything wrong. But if that was true, why do customers have such low levels of confidence? “Because banks are doing things like overtly passing on costs in the form of fees, which may infuriate customers who are expected to pay them,” explained Mr Le Xuan Nghia, Director of the Business Development Institute (BDI). Indeed, respondents to the survey in Vietnam displayed far greater concerns about the quality of ATM and other services at banks, saying that they are not in line with the fees they must pay.

    Another reason Vietnamese people may switch banks is the quality of service offered by local banks. The E&Y survey revealed that half of all Vietnamese customers have closed an account and left a bank due to issues of communication and experience in banking services. In the current economic climate, a number of local banks have reacted by cutting back on staff. This may make some financial sense in the short term, as the fewer people on the payroll the lower the operating costs, and cost cutting is required when profits are declining. But doing so also means that banks are makings cuts in customer service, which not only angers customers but basically encourages them to walk out the door.

    The short-term gain, according to Mr Nghia, should be reconsidered as having staff deal with customers face-to-face remains the most preferred manner among customers and may be a bank’s best hope for promoting customer engagement. “By some measures, the most powerful drivers of customer loyalty and engagement remain branch visits and call centre interactions with a real person,” he said. “Any cuts to staff and customers will have to wait longer to be served at a branch or on the phone. If banks have fewer people serving customers then they don’t have enough people providing top-quality customer service.”

Retention strategy

    The possible cause of the low confidence among Vietnamese customers regarding retail banking is the notion that the banks got themselves into the current mess. Although most banks have sufficient liquidity, many have a huge amount of NPLs on their books. Their sales teams have been too focused on marketing products and have paid little attention to the actual needs of customers. Retail banks have developed a team of salespeople but have not built a professional force of staff with knowledge, marketing ability and experience to advise customers. Not to mention the fact that conducting retail banking transactions can be difficult, with cumbersome and time-consuming procedures, which leads to low business efficiency.

    Still, with 75 per cent of the population yet to have bank account, Vietnam’s market represents a land of opportunity for retail banking. While this is good news, it represents a major challenge for banks seeking to strengthen their position in the market. As significant customer acquisition is unlikely, local banks must focus on keeping hold of their existing customers. But customer retention becomes particularly tricky when customers bank with more than one institution and can quickly and easily take their business elsewhere. It is also hard to assess retention levels accurately when customers don’t close their accounts but simply do less with them instead.

    Banks are in a tough position, but if they handle it wisely they can regain at least short-term confidence, which may become long-term benefits. To do that, Mr Nghia suggests, banks need to provide customers with transparency, loyalty, and truly personal customer relationships. “If banks are loyal to good customers they’ll receive loyalty in return and that is what banks need so badly right now,” he said.

    In many cases, customer satisfaction and loyalty are not simply based on how well a bank’s products perform. Of course, customers appreciate products and service offerings that are relevant to their needs and banks that reorient their existing products to successfully deliver offerings that are specific to customers will come out on top. After all, customer expectations are no different in banking than in any other sector, as they want to see that their custom is valued. “Banks need to understand who their customers are and listen to them,” Mr Pogson said. “It’s critical for them to stay ahead of the curve and try to offer differentiated products and services.”

●  Vietnam’s foreign exchange reserves last month hit a record $35 billion, according to the State Bank of Vietnam (SBV). The figure, SBV Governor Nguyen Van Binh said, not only highlights the stability of the Vietnam dong but also strengthens the position of Vietnam in the international arena.

●  Manulife Vietnam has reported high investment returns for 2013 for its Regular Premium Unit-Linked (RPUL) product thanks to the outstanding performance of the Aggressive Fund, the Growth Fund, and the Balance Fund, which achieved investment returns of 28.6 per cent, 23.2 per cent and 19.2 per cent, respectively, for the calendar year.

●  Shinhan Bank last month signed a memorandum of understanding (MoU) with the Korea Trade Insurance Corporation to strengthen support for South Korean small and medium-sized enterprises (SMEs) looking for opportunities in Vietnam.

●  68.55 million bank cards were in use in the market as at the end of the first quarter of 2014, according to a report from the Vietnam Bank Card Association, an increase of 3.5 per cent against 2013. Debit cards comprised 92.14 per cent of the total and credit cards 3.68 per cent, with the remainder being prepaid cards, issued by 52 card companies. Around 15,500 ATMs and 137,700 points of sales (POS) have been set up to facilitate the bank card market.

●  Life insurer Prudential Vietnam has introduced two new universal life products (ULP) - Pru-Flexicare and Pru-Protect Well - to meet customers’ increasing demand for savings, protection and flexible financial planning. Customers will receive interest from the investment performance of the Universal Life Fund and are also guaranteed a rate of return no lower than 6.5 per cent and 5.5 per cent, respectively, for the first three years.

●  AIA Vietnam and Citi Vietnam have officially signed a strategic agreement to distribute life insurance services through the bank. Citi will exclusively distribute AIA’s life insurance products in Vietnam - one of eleven major markets in the Asia-Pacific region - under a regional strategic cooperation agreement unveiled by the two partners last December.


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