Deloitte expert recommends Vietnamese banks increase non-interest income and cut costs

Market turmoil is forcing US banks to diversify non-interest revenue

According to Ms. Tran Thi Thuy Ngoc, the unstable macro picture in the US is the main catalyst causing banks to diversify their investment portfolios, shift their focus to non-interest income and tighten sustainable cost management.

Ms. Tran Thi Thuy Ngoc, Deputy General Director in charge of Customers and Markets, Deloitte Vietnam.

In the US, macroeconomic uncertainties in 2025 will keep bank executives on alert as consumer spending figures are moderate and likely to decline. In particular, the high financial pressures of consumers will also cause credit card and auto loans to grow more slowly.

Banks’ liquidity needs and depositors’ reluctance to accept low deposit rates are likely to result in higher interest-bearing deposit costs. Banks’ average net profit margins are also expected to decline to 3% and 2.7% in 2025 and 2026, respectively.

With profits falling, banks are forced to improve their investment portfolios, especially their stock portfolios. In this plan, large banks will have a better competitive advantage thanks to their diversified investment portfolios. Other bright spots in investment banking fees thanks to M&A activities, issuance or focusing on capital market activities will help banks modestly improve certain non-interest income.

In this context, banks will likely prioritize focusing on leveraging the right levers to control costs, plan for technology modernization, and retain high-quality talent.

Economic uncertainty, deposit interest rates expected to remain high while lending rates are under pressure to decrease, forcing banks to find ways to increase non-interest income. According to Deloitte's analysis, US banks have several options worth considering to improve their non-interest income.

First, expand retail banking. Accordingly, banks can introduce new services, such as consulting and bundling, to enhance customer value; consider new pricing strategies, such as charging for services that are currently free, designing new pricing models, or bundling or unbundling services; and gain deeper insights into customer needs and price sensitivity through data optimization and targeted marketing.

Second, expand payment services, ensure seamless and secure transactions to increase transaction volume processed; collaborate with merchants to provide various secure payment methods, address customer requirements and security concerns.

Third, strengthen the asset management industry. In fact, asset management is becoming more difficult due to increasing competition. In this context, banks can expand their core investment advisory activities to areas such as tax, estate planning or long-term care. More tailored products such as alternative investments or redesigning fee structures to suit clients are also factors worth considering.

Fourth, step up investment banking. Banks should seek higher exit fees (up to 25%) for large deals; focus on smaller, repeatable deals in the middle market to drive consistent business; explore new geographic markets (like Mexico) to capitalize on growing mergers.

Vietnamese banks face pressure to reduce NIM, must find ways to increase non-interest income and reduce costs  

As for Vietnamese banks, Ms. Thuy Ngoc warned that they will have to face a situation where the difference between lending interest rates/mobilization interest rates (NIM) is decreasing.

Specifically, to support the economic growth target of 8% or more in 2025, more than 20 commercial banks have implemented the request to reduce deposit interest rates in parallel with launching many low-interest credit packages. The difference in interest rates in both directions is expected to significantly affect profit margins, especially when banks' operations still rely on credit.

Furthermore, the Government also assigned the task of “harmonizing benefits and sharing risks” to the banking industry, so it is inevitable that banks diversify their revenue sources and improve non-interest income.

According to forecasts, the proportion of non-interest income to total income of Vietnamese banks in 2025 will remain at 22%. This proportion may increase as banks adjust their strategies in each business segment.

In addition to increasing non-interest income, Deloitte also recommends that Vietnamese banks pay attention to cutting operating costs. In fact, many banks have recently made efforts or initiatives to save costs, but often do not achieve the expected results.

The situation is similar in the US, where some banks have announced formal plans to optimize branch efficiency, reduce headcount, streamline their organizations, or exit secondary markets. However, in a Deloitte MarginPLUS survey, 56% of 25 global banking and capital markets leaders said their organizations did not even achieve 50% of their cost savings targets last year.

From the experience of international banks, Ms. Thuy Ngoc believes that Vietnamese banks should aim for more sustainable cost transformation by using levers such as:

Harness the power of cost transparency: capture cost transparency to understand why underlying costs are rising; add operational costs to understand how to better leverage resources and sustainably reduce costs.

Scale automation and AI to reduce costs and increase productivity: accelerate adoption of automation and machine learning tools; scale AI and deploy large language models to create additional efficiencies and cost savings.

Integrate risk control into change initiatives early: integrate risk and compliance elements early into transformation and cost change initiatives for sustainable reduction

Finally, maintain strong execution discipline. Specifically, continuously monitor results against business goals; focus on accountability for achieving cost savings targets.

Source: https://baodautu.vn/chuyen-gia-deloitte-khuyen-nghi-ngan-hang-viet-tang-thu-ngoai-lai-cat-giam-chi-phi-d265599.html