Competition from commercial banks
According to Techcombank, in the first six months, this bank achieved NIM of 4.2% vs 3.3% of the industry average, thanks to the movement towards retail banking and a strong increase in CASA deposits (current account-saving account) which helped Techcombank reduce its funding costs. While the total deposit of Techcombank rose 8% YoY, the growth of CASA was much more than that. Hence, the contribution of CASA to total deposits of Techcombank increased from 22.7% in 2018 to 30.4% in 6M/2019.
Previously, state owned banks had more advantages in raising demand deposits given their tight relationships with many big corporations. However, over the last few years, some commercial banks have been moving more towards demand deposits to offset the pressure that these banks have been facing in competing to raise long term deposits.
In 2018, the proportion of CASA in total deposits in the banking system fell from 18.7% to 18.2%. However, MBBank, Vietcombank and Techcombank were successful in maintaining this ratio at 33.5%, 28% and 27%, respectively.
In Q2/2019, in terms of absolute amounts, Vietcombank was the leader with total demand deposits of VND 239,500bn at the end of second quarter, an increase of 5.5% YTD, followed by BIDV and Vietinbank with demand deposits of VND 152,000bn and VND 121,000bn, respectively.
The proportion of CASA to total deposits of Vietcombank were at 27.47% at the end of second quarter, lower than 30.4% of Techcombank and 33% of MB Bank. This ratio of TPBank and ACB were 17.16% and 16.6%, respectively.
Notably, BIDV and Vietinbank, which have a strongest network of branches, have not been having high demand deposits. The contribution of CASA to total deposits in these two banks was only 14.34% and 14.37%.
Strategies to raise CASA amount
The increase in CASA amount will help banks reduce interest rate expenses. For example, the growth of 68% in CASA of Techcombank has helped this bank save VND 700bn of interest cost in the first six months of 2019. However, to achieve the result like Techcombank, banks need to have suitable strategies.
While Vietcombank has advantages from big corporations, MBBank has good relationship with companies in army or military sectors, such as Viettel, Customs Office or National Treasury.
For Techcombank, the strong growth in CASA was driven by 28% increase in number of debit cards and 60% YoY surge in debit card transaction value to VND23,000bn. The number of credit cards and their transaction value also rose 43% YoY and 80% YoY respectively. Techcombank offers clients free account services, and also applies a cash-back program which allows clients to receive 1% of total transaction value back.
According to a leader of Techcombank, the above policies have helped the ratio of cash withdrawal at this bank fall from 89% to 80%. This ratio of the industry is generally around 95%. Techcombank also gradually digitalized most client transactions to move clients from doing transactions physically to doing transactions online.
Competition remains tough
Under the current situation, to reduce the lending interest rate and improve profits, banks have to decrease the funding costs as well as the operating costs. The financial statements of banks over the last few years show that banks have cut huge operating costs. However, the lending interest rate has not been cut down because the deposit funding costs have still been high.
The solution to reduce interest rate cost is by increasing the amount of demand deposit or CASA. Some people say that the average funding cost of Vietcombank has only been 3.5%, allowing this bank to loan clients at lower interest rate but still maintain an attractive NIM at 2-3%/year.
According to Vietcombank, the proportion of retail banking in total lending activities increased to 34% in 2018 and the bank will continue pushing up this retail sector to maximize profits in 2019. To meet this target, Vietcombank has created many services and products to maintain cheaper funding costs and competitive lending interest rates.
ACB has also just posted its development strategy for 2020-2024, with a target to increase the ratio of CASA in total deposits to 25% by 2021.
Currently, besides maintaining good relationship with companies that have good cash flow, banks have also moved further to retail banking sector to improve CASA amounts. For example, ACB targets to improve the proportion of CASA to 25% by 2021 by doubling the number of accounts to 5mn by 2021.