Equity Analysis /

Vietnam banks: CASA and digital payment initiatives

    Anh Nguyen
    Rong Viet
    7 October 2019
    Published by

    Since 2018, stricter regulations on funding (Basel 2, the ratio of short-term capital to fund medium and long-term loans) have been expected to have a negative impact on banks' net interest margins as banks will have to push long-term bond issuance as well as compete on customer deposits by raising interest rates. Among our watch list, the trend of increasing funding costs can be found most clearly in TPB, VIB (those boosted lending most strongly recently), followed by BID, MBB, VPB, and HDB.

    While the expansion of asset yields becomes more limited as the transition towards retail lending slows down and competition intensifies, the control of funding costs serves as a driver of interest income growth. In fact, in order to control funding costs, maintaining the current account and savings account (CASA) ratio will play an important part. This is a low-cost funding source (with a cost of only 0.1-0.5% annually) and with an adequate growth rate, it will be able to offset the increase in expenses for term deposits and bond issues. 

    In Vietnam, digital banking has become a trend amongst banks, with various fee promotions initiatives to encourage customers to use digital payment, thereby improving CASA. Currently, MBB and VCB are two banks with the highest CASA ratio and lowest funding cost in the sector. The investment in digital banking and promotion initiatives can support the CASA ratio, but is also likely to raise operating costs and settlement expenses.