Bancassurance will support growth in all banks

SGI

As credit growth becomes more tightly controlled, it leaves little room to improve the Net Interest Margin (NIM), as many banks are also increasing service fees for cross-selling activities. Among these, the insurance channel through banks or Bancassurance, is now becoming an important growth driver, especially in the Life-Insurance segment.

Illustrative photo.

Illustrative photo.

According to the Organization for Economic Co-operation and Development (OECD), Vietnam's GDP can maintain an average growth rate of 6-6.2% per year until 2025. To add to this, more than 50% of Vietnam's population will join the global middle class category by 2035, compared to only 11% in 2015. In coming times, favorable economic conditions and a larger younger population with a fast-growing income will create a strong base for the insurance segment. The need to save, invest in, and own a car, will boost the demand for personal insurance, life insurance, health insurance, and car insurance.

Insurance companies have tried to grasp this trend by reaching out to customers through Bancassurance. Although there is no detailed data on non-life insurance, it is noticeable that the cost of non-life insurance through bank channels has grown significantly over the last few years, at an approximate annual rate of 84% from 2016-2018. The proportion of bank contribution to total life insurance premiums has continually been expanding from 5.9% in 2016 to 12% in 2018, and 15.8% in nine months of 2019. This channel also accounted for 29% of the total insurance fee for the first year, up from 21% in 2018 and a mere 10% in 2016.

In the first nine months of 2019, service income expanded most strongly at the Vietnam International Commercial Joint Stock Bank (VIB) and Vietnam Prosperity Joint Stock Commercial Bank (VPBank). These two banks showed Bancassurance income growth of more than 100% in first three quarters of 2019. Other banks that showed successful results were Tien Phong Commercial Joint Stock Bank (Tienphong Bank), Vietnam Joint Stock Commercial Bank for Industry and Trade (Vietinbank), and Military Commercial Joint Stock Bank (MB Bank). Vietnam Joint Stock Commercial Bank for Foreign Trade of Vietnam (VCB) and Asia Commercial Joint Stock Bank (ACB) are also expected to have significant growth in annual income from insurance under the new Bancassurance agreement signed in 2019. There will be much more significant changes for VCB after it signed an exclusive contract with FWD-Vietnam last November. ACB too signed contracts with Manulife in September and FWD-Vietnam in December.

Since 2016, after VIB signed an exclusive life insurance distribution contract with Prudential, the Bancassurance income has grown very strongly in the past three years. In 2018 the number of life insurance contracts at VIB increased by more than 260% compared to 2016, and more than 200% compared to 2017. For VPB, service income at the parent bank in the first nine months of 2019 increased by 51.6%, of which Bancassurance income grew by 32.3%,  accounting for 23% of total service income.

With several contracts signed by banks in 2019 for selling insurance, in particular life-insurance, the level of competition in this field is clearly expected to become more intense. Fierce competition in future could slow down income growth from insurance activities in banks, especially banks that have stepped up in this field in the last one or two years after exclusive distribution contracts were signed. For these banks, other service activities such as payment fees, card fees, guarantee fees or bond services should be promoted more, to keep overall service income growth at a steady or high level.

For example, in the case of ACB, income from insurance is affecting the growth of fee income in particular and operating income in general. In the first nine months of 2019, ACB was among the top seven banks with the highest fee income from Bancassurance, with a growth of 250% to touch VND 414 bn, which also accounted for 29.3% of operating income. This activity is expected to be promoted at ACB after the two co-operation contracts with Manulife and FWD-Vietnam have been signed, in addition to support from existing current partner AIA.

In the past, VCB did not promote Bancassurance in proportion to its level and scale. However, now with an exclusive contract with FWD-Vietnam, VCB can create a strong growth strategy by cross-selling to its existing large customer base. Income from insurance, along with increasing income from other service fees, is expected to increase the service income growth to 50% per year, from now until 2022.

Translated by Francis

Nguyen Thuy Anh, Viet Dragon Securities Company (VDSC)

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