The difference between domestic and foreign banks

While domestic banks compete to increase credit growth, foreign banks are not interested in lending and they tightly control bad debt.

Illustration photo. Source: Internet

After the restructuring process, the Vietnamese banking system has now been purified, reducing the number to 31 joint stock commercial banks, 4 100% state-owned banks, and 2 policy banks (Vietnam Policy Bank and Vietnam Development Bank).

It is worth mentioning that recently, while domestic banks have faced pressure to restructure and reduce the number of banks, foreign banks have increased their presence.

Up to now, Vietnam has 7 100% foreign-owned banks established including ANZ Vietnam, Hong Leong Vietnam, HSBC Vietnam, Shinhan Vietnam, Standard Chartered Vietnam; Public Bank Berhad and recently the State Bank of Vietnam has approved in principle Woori Bank to establish a 100% foreign-owned bank in Vietnam.

In addition to the 7 "foreign" faces mentioned above, there are 2 joint venture banks, Indovina Bank and Vietnam-Russia Bank, along with more than 50 branches and representative offices of foreign banks in Vietnam.

According to industry experts, the penetration of more foreign banks will create competitive pressure, increasing the business efficiency of Vietnamese commercial banks as well as service quality.

Foreign banking style: Cautious lending, promoting retail services

Due to their extensive network of operations and extensive experience in the international market, foreign banks entering Vietnam quickly expanded into consumer and retail services.

With a population of more than 90 million and low average income, retail banking is considered a fertile land for foreign banks.

While domestic banks compete to increase credit growth, foreign banks are not interested in lending, and ANZ has even narrowed its credit activities.

At the end of 2016, customer loans reached 14.1 trillion VND, down 13.4%. Customer deposits reached 32.6 trillion VND, down 8%. The total assets of the bank reached 39 trillion VND, down more than 15% compared to the beginning of the year.

Because it did not follow the strong credit growth trend like Vietnamese banks, ANZ's net interest income decreased to only 1,230 billion VND, down 8% compared to 2015. But in return, they have advantages in service activities, other business activities bring in quite good net profit while cutting operating costs to increase profits.

The second difference is that foreign banks control debt quality quite well. The total bad debt of ANZ Bank as of the end of 2016 was 156 billion VND, accounting for 1.09% of total outstanding loans, down 1.15% compared to the beginning of the year.

Similarly, HSBC Vietnam’s bad debt is also controlled at a fairly good level. The total bad debt at the end of 2016 was VND428 billion, accounting for 0.84%, down from the previous year’s rate of 1.06%.

Joint venture banks "similar" to domestic bank business strategies

Take Indovina Bank for example. By the end of 2016, Indovina Bank's total assets reached 1.7 billion USD, equivalent to 37.9 trillion VND, an increase of nearly 40% compared to the beginning of the year.

Similar to Vietnam's joint stock commercial banks, Indovina promotes lending and net interest income plays an important role in the revenue structure.

Specifically, Indovina Bank's customer loans reached VND18.7 trillion, up 30%. Customer deposits reached VND22.1 trillion, up 16%. In 2016, the bank's net interest income reached VND958 billion, up 31.5% over the previous year.

The increase in lending and bad debt at Indovina Bank is also at a fairly high level, equivalent to the bad debt ratio of total outstanding loans of Vietnamese banks. The total bad debt of the bank by the end of 2016 reached 415 billion VND, accounting for 2.21%, down from the bad debt ratio of nearly 4% at the beginning of the year.

Domestic and joint venture banks' income is only 1/4 of foreign banks'.

According to ANZ Bank Vietnam Limited, the average number of employees in 2016 was 568 people, with an average income of about 70 million VND/month (of which salary was 67 million VND/month), an increase of 1 million VND compared to 2015. This is an "unprecedented" salary at other commercial banks. Compared to large banks in Vietnam such as Vietcombank, VietinBank or BIDV, the above figure is 3-4 times higher than the income. Compared to small banks, this income is 5-6 times higher.

Meanwhile, if compared with the income of Indovina Bank joint venture employees, ANZ's salary is also 4 times higher.

By the end of 2016, the total number of employees of Indovina Bank was 731, a decrease of 45 compared to the previous year. The average salary of each bank employee last year was 167 million VND, equivalent to 13.9 million VND/month. The average income was 213 million VND/person/year, equivalent to 17.75 million VND/month, a decrease of 400 thousand VND/month compared to the previous year.

In terms of labor productivity, HSBC Vietnam has shown that its employees are the most efficient in the system. The bank's 2016 profit after tax increased by 54% compared to the previous year's results, reaching 1,440 billion VND. The total number of employees of HSBC Vietnam is about 1,300. Thus, on average, one HSBC employee generates 1.1 billion VND.

Previously, ANZ Vietnam announced that its after-tax profit reached VND452 billion, up 51% compared to last year. This is a bank with a charter capital of VND3,000 billion, with a staff of 568 employees, meaning that on average each ANZ employee made VND795 million for the bank in 2016.

Meanwhile, compared to some large banks in Vietnam such as Vietcombank, in 2016 the labor productivity of each employee for the whole year was more than 430 million VND; VietinBank employees was nearly 300 million VND; Techcombank employees was 404 million VND or ACB employees had a labor productivity for the whole year of 135 million VND,... it is clear that employees of foreign banks are far superior in terms of labor productivity.

According to Cafe.f