Bank profits still come mainly from credit

Shifting the business model of commercial banks towards reducing dependence on credit activities and increasing income from non-credit service activities is one of the key tasks set out by the Government in Banking industry development strategy until 2025, orientation to 2030.

Accordingly, in Decision No. 986/QD-TTg dated August 8, 2018, the Government set a target that by the end of 2020, the proportion of income from service fees will reach about 12 – 13%, and by the end of 2025 it will increase. up to 16 – 17%. However, after 5 years of the Strategy being approved, the banking industry is still quite far from the goal.


The issue of reducing income dependence on credit activities and increasing income from service activities of commercial banks has been raised by the Government since 2012 (in the project “Restructuring the system of financial institutions”. credit institution in the period 2011-2015).

Experts say that this shift helps disperse risks for banks. If credit activities contain many risks such as liquidity, bad debt… then non-credit activities contain very little risk and bring a stable source of revenue for the bank.

For the entire economy, the increase in service activities by banks will contribute to increasing the circulation of capital flows, contributing to economic growth. Banking services provided have an overall impact on different sectors of the economy, from industry, agriculture, trade, services, import and export…

In addition, the development of non-credit services also contributes to promoting the process of financial transparency in the economy, actively contributing to preventing corruption, tax evasion, money laundering…

According to information on the State Bank’s website, in the period 2014 – 2019, interest income accounted for an average of 78%, while the proportion of revenue from service fees only fluctuated between 12% and 14% of total operating income. business activities of Vietnamese commercial banks.

Thus, the proportion of income from service activities of the entire banking system is currently narrowing compared to the period 2014-2019.

This decline is largely due to the bancassurance channel crisis (cross-selling insurance through banks) in early 2023. Previously, the 2020-2022 period bancassurance was also considered the “golden egg” of banks. row.

Statistics from banks’ financial reports show that most banks that reduced the proportion of net profits from service activities in the third quarter of 2023 compared to the end of 2022 had a sharp decline in profits from business activities. insurance.

There is a big divide in the race to restructure profits among banks today. By the end of the third quarter of 2023, 5/27 listed banks had a net interest income ratio from 90% to over 96%; 7/27 banks maintain this ratio at over 80%; The remaining 15 banks have over 70% of their profits coming from credit.

Some banks maintain a high and stable net profit ratio from service activities in the system such as SeaBank, TechcomBank, VPBank, VIB.

Notably, at the end of the first 3 quarters of 2023, An Binh Bank’s proportion of income from services skyrocketed from 5.17% at the end of 2022 to 21.65% as of September 30, 2023. Even more special is that in April 2023, An Binh was the first bank to cancel the bancassurance contract with FDW.

Bank profits still come mainly from credit - Photo 1


Thus, up to now, the operating income structure of Vietnamese commercial banks is still heavy on interest income, the proportion of service income is still significantly lower than the target set in the Banking Industry Development Strategy. goods and still have a long distance compared to other countries.

Looking at the positive side, Vietnam’s banking industry still has a lot of room to increase income from service fees, especially in the current context of rapid technological development.

According to The Financial Brand, in the US market, the rate of service fees accounts for about 33 – 36% of a bank’s operating income; in the European market: 31 – 33%; in the Thai market: 26 – 28%; in the Japanese market: 32 – 36% and in the Chinese market: 21 – 22%.

In just the past two decades, the rapid progress of science and technology along with the explosion of a connected society has rapidly changed customer behavior, especially in the service industry. financial services. That context has opened up new trends and also made existing trends in banking activities clearer. These are: open banking, digital banking, retail banking, green banking, financial investment services and the rise of Fintech.

Around the world, financial experts have introduced the concept of four banking generations.

Banking 1.0: Historically traditional banking, with physical branches as the primary access point (period 1472 – 1980).

Banking 2.0: Self-service banking trend, defined by banks providing services outside of business hours (starting with the ATM system and accelerating since 1995) (period 1980 – 2007).

Banking 3.0: Banking when and where the need arises, starting with the emergence of smartphones in 2007 and accelerating with the shift to mobile, P2P payments (phase 2007 – 2017).

Banking 4.0: Banking transactions take place everywhere, integrated in customers’ daily lives and performed in real time through technology platforms (2017 onwards). This is the open banking model.

In Vietnam, a number of banks have transformed strongly to catch up with the open banking trend, aiming to integrate banking services into all activities of human life, in real time, based on new technology platform and minimize barriers that slow down the connection process between banks and customers. In that development roadmap, the bank’s products and services will become increasingly diverse, rich and personalized to meet all customer needs. This will be an extremely favorable factor to help Banks gradually reduce their dependence on income from traditional banking activities…

The full content of the article was published in Vietnam Economic Journal No. 7+8-2024 published February 12-25, 2024. Dear readers, we invite you to read here This: Kinh-te-viet-nam

Bank profits still come mainly from credit - Photo 2

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