By Emily Frost – firstname.lastname@example.org
In March 2015, Vietnam Prosperity Joint Stock Commercial Bank (VPBank) received the High Growth Rate in Trade Business Award from US banking giant Wells Fargo, recognising the Vietnamese lender’s strong growth record in recent years, as well as its unwavering dedication towards providing a high-quality trade-finance service. More specifically, the prize was awarded for the meteoric 58-percent rise in the total value of VPBank’s trade-finance transactions between 2013 and 2014. VPBank is the first Vietnamese bank to win this prestigious award—one of the many indicators of the bank’s strong performance over the last five years or so, one which has exceeded expectations on nearly all fronts.
VPBank has now been in business for more than 22 years, making it one of the first joint-stock commercial banks to be established in Vietnam. It has enjoyed a steady growth path since its inception, while a more pronounced upward trajectory has been experienced since 2010. Notable signs that illustrate VPBank’s astronomical growth in recent years have been the exponential expansion of its customer base by tenfold, from nearly 200,000 in 2011 to more than 2 million in 2015. The most definitive transformation that VPBank has experienced can be partly credited to its partnership with McKinsey & Company, the global leader in consulting.
Since the beginning of the decade, the bank has worked with McKinsey to embark on a journey to become a leading retail bank in Vietnam. Six initiatives have been implemented that have fundamentally changed the bank’s value proposition, sales model, credit underwriting system and branch network into that of a modern retail bank. The partnership consequently initiated an aggressive growth strategy that began in 2012 and hopes to be fully achieved by 2017. The strategy principally focuses on strong organic growth in targeted customer segments, while ensuring systems (such as human resources and technology) are in place and are appropriately updated to support growth requirements. The strategy also places ample attention on actively monitoring the markets in order to capitalise on any inorganic growth opportunities that arise.
VPBank aggressively drives its organic growth by principally focusing on its retail and SME (small and medium-sized enterprise) customer segments, although larger business customers are also given importance. By shifting its focus to retail banking early, VPBank has made remarkable advances and ranked fifth in terms of individual deposits and fourth in terms of individual loans among joint-stock commercial banks in Vietnam by the end of 2014, with remarkable contributions from the consumer-finance business. As one of the first banks focusing on consumer finance, by 2013 VPBank was the only bank having a sole operation model for consumer finance. VPBank has taken the advantage of the first mover to grow and take the leading position in the consumer-finance market in Vietnam, holding 40-percent market share for motorbike loans and 30-percent market share for consumer-durables loans. The number of consumer-finance customers of the bank increased by 50 times between 2011 and 2014; outstanding loans increased by 25 times, and the business has significantly contributed to VPBank’s profit. Not resting on its laurels in consumer finance, VPBank keeps on searching for new business opportunities, such as household and virtual banking. Currently, household banking has already operated the first pilot units and is expanding rapidly; whilst the virtual banking model is under design to make VPBank the first virtual bank in Vietnam.
The bank has adopted a highly progressive SME banking model, one which offers creative products and uses the latest technological innovations in its cash-flow management, business finance and risk-management systems. VPBank’s SME Division strives to be the bank of choice for Vietnamese enterprises, and having been awarded “SME Bank of the Year–Vietnam” by Asian Banking & Finance magazine for its creativeness, impact upon the market and product strategy within the SME segment, the bank’s vision of being the country’s SME market leader is rapidly becoming a reality.
Regarding foundational building, VPBank is among the banks with the highest degree of centralization and specialization in Vietnam today. Business units are organized to focus solely on sales to granularly segmented customers. An innovative “hub and spoke” model has been employed whereby geographic locations have been identified as service hubs, which have the capacity to support several branches, or spokes, within a certain radius. Such hubs are strategically positioned to enable convenience to the customer, while ensuring its retail business delivers a rapid turnaround time. VPBank’s operations division now also has centralised customer-service functionality, the quality of which is assessed via a services-quality department, which oversees the standard of service and staff training, as well as standardising the level of service across all branches.
Operational activities are also centralized at head office and hubs, thereby reducing operating costs while still ensuring the meeting of SLAs (service-level agreements) with customers. Loan appraisal and approval are centralized at credit-processing centres, while other operations such as administration, accounting, human resources, information technology are provided centrally by departments at head office, thereby helping to provide consistent service quality and release business units from non-sales operations. With high levels of centralization and specialization, VPBank has considerable advantages for operation and management compared to other banks in the market.
From a technological standpoint, VPBank is also at the forefront of employing the latest developments available to the Vietnamese banking sector. It has also adequately prepared for the growing trend of digital banking, having taken the view that the majority of straightforward banking transactions will be increasingly executed automatically, either through ATMs, Internet banking or mobile banking. This preparation also extends to VPBank’s back office, where a process of enhanced service automation will ultimately result in a substantial reduction in human error. The implementation of systems such as ERP, CRM and Data Warehouse, VPBank believes, will continue to increase the capability of its back office. However, the lender predicts that humans will still principally govern the more complicated, nuanced and value-added transactions between banks and their customers.
VPBank’s eBanking platform has also garnered much international praise, which has culminated in the bank receiving the “Best Electronic Bank” award by Global Banking and Finance Review earlier in the year. Thanks to its set of three core values—smart, simple and secure—VPBank’s eBanking system is now widely considered the most comprehensive in the country. VPBank Online can be installed on multiple devices (computers, tablets, smart phones) and operating systems (iOS, Android, Windows Phone), and has the most connections in terms of bill-payment services to nearly 500 providers of electricity, water, rail/air travel and shopping, among others. Furthermore, the bank has developed a very simple three-step system to allow customers to execute conventional banking tasks through VPBank Online, such as money transfers and bill payments, while ensuring Internet security is not compromised. The sophisticated yet user-friendly 3DES technology is employed to encrypt customer information, while VPBank also recently became the first bank in Vietnam to be verified as compliant with the Payment Card Industry Data Security Standard—the certified international security standard from PCI Standards Council.
This bank’s growth strategy has been used as a foundation upon which to differentiate itself from the Vietnamese banking competition, and is clarified from the outset through six core values by which VPBank abides: customer focus, productivity, ambition, people development, trust and making a difference. In addition to McKinsey’s support, VPBank has also sought the advice and expertise of a variety of industry leaders to achieve its objectives, including consulting firms PricewaterhouseCoopers and EntroFine, and technical solution providers such as SAP and IBM. It is this drive to learn from the best in order to achieve its successes that separates VPBank from its competitors. While other banks in Vietnam have delivered sound growth strategies, many have been plagued with persistent setbacks, such as unrealistic objectives, a low commitment to execution and a lack of resources.
VPBank’s comprehensive transformation seems to have paid off in spades, with dramatic growth being experienced by the bank since 2010. Indeed, every year of the current decade has seen a significant improvement upon the previous year, with 2014 arguably proving to deliver VPBank’s best-ever set of financial results. This has kept the bank well on track to achieve its growth goals by the end of 2017. From last year’s stellar performance, certain measures stand out: a 35-percent increase in total consolidated assets versus 2013, a 29-percent expansion in customer deposits (which exceeded VND100 trillion for the first time ever), a 39-percent growth in the bank’s credit balance and a 19-percent rise in consolidated profit before tax. Moreover, with all aforementioned parameters exceeding projected figures, which were ascertained at the beginning of 2014, the bank has comprehensively performed better than its management predicted. At 2.54 percent, the VPBank has also kept its non-performing loan ratio well below its target of 3 percent and significantly lower than the market average in Vietnam, while return-on-equity for 2014 was recorded at 15 percent, indicating the healthy level of profitability the bank is achieving for its shareholders.
There have been challenges in recent years that have impacted and shaped the evolution of VPBank’s commercial banking business, particularly those specific to the Vietnamese banking market, including low asset quality and a high level of involvement of banks with riskier state-owned enterprises. VPBank has anticipated several of these potential hazards. Having identified retail banking as being a major growth sector within Vietnamese banking, VPBank aligned its focus on this sector earlier than most lenders in Vietnam, thus allowing it to cement its position as a retail-banking leader within the country, especially in the consumer-finance business. As a result, VPBank has managed to keep its overall lending provisions to higher-risk state-owned enterprises to less than 5 percent of its total loan book in recent years, which has been pivotal for VPBank to maintain its NPL (non-performing loans) ratio at admirably low levels.
Vietnam’s banking sector is expected to go through a substantial amount of consolidation over the next few years, with the country’s central bank having already targeted weak lenders with bad debt and poor liquidity. This is expected to lead to potential windfalls for some of the country’s bigger banking entities, which should be able to exploit further economies of scale as a result. Given its specific focus on growth sectors such as SMEs and retail banking, as well as its low NPL ratio and minimal overall exposure to high-risk sectors, VPBank is particularly well-positioned to capitalise on this consolidation.
The ultimate goal for VPBank is to be considered among the five leading joint-stock commercial banks and one of the three leading retail joint-stock commercial banks in Vietnam by 2017. VPBank has already seen total assets grow from VND163 trillion to VND179 trillion during the first half of 2015, indicating that the bank’s golden run is continuing and is firmly on course to meet the VND204 trillion target it has set for the end of the year. Its efficiency drive over the last few years has reaped remarkable results, and therefore there is very little reason to suggest that this laudable rate of expansion will not continue for the next few years and propel VPBank into that coveted top three position.