Interview Transcript: “We try to think like our customers”

• Huy said ACB has focused on building its retail network after it went through massive restructuring due to a huge credit crisis
• Under Huy's leadership, the bank has heavily invested on IT infrastructure
• The bank has developed a customer-focused culture to better serve its customers

Emmanuel Daniel (ED): There is a huge difference between Hanoi and Ho Chi Minh City in the dynamics of the retail banking business. In Ho Chi Minh City, banks such as Asia Commercial Bank (ACB) are very aggressive. The brand is very strong. So, I am here to get a profile of your business and how you see the competition. Now that the economy is stabilising, how do you think it will evolve? How confident are you to take on new loans? And what is your loan book like, is it commercial? Is it small business?

Tran Hung Huy (THH): Asia Commercial Bank has 350 branches across the country. The majority or 138 branches are in Ho Chi Minh City and nearby provinces. We have about 55 branches in Hanoi. The other branches are spread across the country. So, the two big hubs are Ho Chi Minh City and Hanoi. And then the third one is the Mekong region and other major cities. Each has about ten branches or so.

As you know, we are very strong in the Ho Chi Minh area. That accounts for 55% of our business. When time was better, Hanoi accounted for about 20% to 25%. In the last few years, we have seen a lot of bad debt emerged from there. It affected not just us, but most banks.

Focusing on retail banking

Our business is actually in the retail banking base, not the state-owned enterprises (SOEs). ACB does not concentrate on the SOEs. We have very limited – and capped our limits – exposure to the SOEs. The MLMCs have also seen very difficult times in the last three or four years. We have narrowed our base in that area too. So, the majority is actually just retail. Even in the Hanoi region and surrounding areas we have seen an increase in non-performing loans (NPL) in the last three to four years. 

We have gone through a massive restructuring. In 2012, we had a huge credit crisis and the financial sector and the stock market were in turmoil. We had to change the entire leadership of the bank and we did a lot of realignment in our senior management team. So, now it has become stronger. It is bearing fruit now.

Our footprint and our business is mainly in retail banking; consumer and small and medium enterprises (SME). Retail accounts for about 82% and MLMC accounts at 18% to 20%.

So, we are very retail focused and it has always been in our DNA for the past 23 years. We are a privately-owned bank. But, 23 years ago, we were actually one of the last banks to be granted a licence.

I am from the founding family. And then we got the licence. We started opening to the public when we got listed and currently we own 30% share of the bank.

Other major shareholders are Dragon Capital, Jardine Matheson, and Standard Chartered Bank. Standard Chartered has 15%. The other two roughly own about half of the remaining 15%.

ED: It is not easy to build a retail network and you are one of the first privately-owned retail banks in the country. So, the brand actually extends. When you say retail loans – is that a lot to do with mortgages or just small business loans?

THH: Small business loans, consumer loans, and spending loans. We are not particularly strong in mortgage loans. Actually it is not one of our niches. We see a lot of volatility in the primary mortgage market in Vietnam. So, we participate in the secondary market – refinancing. There is a lot of ups and downs in the primary market. And for real estate mortgage developers, they are not always consistent and quality is an issue across the board. So, we have been selective. We pick the developer. We have only a handful of developers that satisfy our risk appetite and standards.

The card business contributes VND150 million a year for us. We were one of the first movers in the credit card business. Most of our business is denominated in the local currency, Vietnam Dong (VND), partly because of regulatory requirement and the strength of the VND. We are not like Techcombank, which is more of an export-import oriented bank and has more dollar denominated income. Even during the crisis, it was easier to do business in VND.

Our current capital adequacy ratio is more than 12% (in line with BIS standards). We are one of the ten selected banks to be Basel II compliant by 2018, so we are currently doing dual tracking. Actually, we just launched in the second quarter a plan to raise VND$2 trillion in three-year capital bond up to 2018. So, we are fully compliant to Basel II criteria.

Our current cost-to-income ratio (CIR) is on the high side. We have always been able to keep it around 45% to 48% prior to the crisis. So, we had to manage that and gradually reduce it. We have about 10,000 employees. Our credit rating is at par with Vietnam’s sovereign rating

ED: That is actually very good. What is your current focus as chairman?

THH: I will break that into two parts. First, is the macro business. We have seen in the past five years huge swings in the economy. I think it will continue for the next two years for the financial sector, banking in particular. Volatile credit growth will continue – 20% or 25% growth on average. You see some of the outliers at 40% or 50%, they are more exposed to the real estate market or the primary market. We choose not to stay in it. We think, 25% credit growth is good, with a healthy SME and consumer focus that we are looking at.

We will take that as our best case, but with regards to margins. Right now, we have to run the ship very tight to get a 3% net interest margin (NIM). It used to be 5% or 6%.

ED: Banking in emerging markets used to be really fun because it is like 5% or 6%.

THH: Leadership in government has also changed. They are at the beginning of the term, I think they want to use the banking system to try to help the businesses. The SME business in the past few years is quite significant for an emerging market like Vietnam. So, I think the government is very keen on using the banking industry. Politically and economically, we will continue to see margins being very narrow for the industry. I think for a short period it is okay. For a longer period, it will take up provisions of banks. And that is reflected in the share prices of banks in Vietnam, which are not very attractive for investors.

Using technologies to drive growth

ED: Right. In terms of reaching out to your target customers, how technology-driven are you?

THH: That is the second aspect of my job as chairman of this bank, infrastructure investment. In the past three years or so, we started investing heavily in IT and in the next three years, we earmark to invest VND20 to 25 million a year in IT infrastructure. We actually find a very common interest in what The Asia Banker has always been saying – the future of banking is about banking service and not about the bank anymore. So, that is what is thoroughly communicated at the bank. We do spend a lot of time trying to upgrade technology. We have mobile apps. We do not do much marketing on our apps, but we are shifting a lot of transactions and activities to the apps. There are still tellers – this is still a cash dominated economy, so we are trying to shift towards that. But we do not want to alienate our customers, so we are urging them softly to shift to other channels.

ED: What technologies excite you at the moment? Are you excited about the change that is happening within the organisation?

THH: We have an innovation lab in the bank. And we have been encouraging that. Fintechs are quite active in the domestic markets for investments and co-investment funds. We are minority shareholders in a fund. We want to look at customers’ behaviour and we have some in-house IT development focusing on customer experience. We have a department called “customer experience”. We follow their journey – whether they are at the branch, are using the app, or are contacting our call centre. We want to know how that journey seamlessly connect them and we want to create an experience around that.

We are now talking about banking services, we do not really say products or services. We are trying to think like the customer, what is the journey with us about their experience. We are shifting how we think. The Vietnam banking industry is very young, 25 years old, although some state-owned banks are 30 years old already. But the majority are relatively new, around 20 to 30 years old. However, the technology is not advanced as compared in other markets.

We have online, internet banking, and call centre, which we introduced five years ago. We were one of the first movers to have a call centre. We have mobile banking, not on the smart phones, but the one that is text-based or e-banking that were introduced ten years ago. Now, what we are trying to do is to shift from just standalone platforms. Whether a customer walks into the branch or uses our apps, it has to be simple and connected – just like a part of his or her natural activities.

We are shifting the culture and behaviour of our 10,000 staff and, at the same time, are shifting consumer behaviour. So that they do not realise that the activity was changed or how they do banking was changed – it should just occur naturally. Before, you need to fill out forms to pay your bills; now, you do that on mobile.

We encourage internal innovation and behaviour change, especially on how they see our customers. We are focused on training. We include trials and ‘gamification’ in our trainings so that everyone attends, instead of a whole classroom training on new products and services. When a new product comes out, we share the information across the bank, so that the tellers can also participate and not just the loan officers.

We are building knowledge across all platforms. It also creates more cross-selling because all employees are now aware of the products or services and can cross-sell.

ED: When you say cross-sell, what is the per customer asset size of Vietnamese banks? Is it large enough for wealth management?

THH: Transaction, yes. Right now, wealth management is very far away. It depends on how quick the revolution and growth of financial products and wealth. I would say it is five or ten years away. Wealth management, private, priority or privileged segments at the high end – most banks have these segments. But it is not very profitable, even for foreign banks like HSBC, Standard Chartered, and ANZ.

ED: It is not profitable because of costs or because the asset size is not there?

THH: Asset size. Vietnam is going through a period where everyone who has any spare cash wants to do investments. You do not want to do passive investments. There are more investments into small businesses, family businesses, purchasing houses, stocks, etc. They do that with their spare cash and these are not really managed investments. Private or priority banking is not there yet.

ED: Do you see foreign banks as your competitor?

THH: It changes from time to time. I would say, a few years ago, you see foreign banks as very active, even in the retail sector. HSBC was very successful, but due to, I would say, international woes and regulatory changes, foreign banks have retracted. I think it is quite impossible for them to compete with domestic banks within the retail sector.

We see the main competitors divided into two tiers. Top tier are the larger competitors – our bank and previously, Sacombank, Eximbank, and Techcombank. In the second tier are much smaller banks – we have 33 banks. Our main competitors are actually other domestic retail banks. State-owned banks have entrenched into the retail space in a much stronger way. They have shifted successfully and I would say they are doing very well. Vietinbank and Vietcombank are also after the retail space. They definitely have the competitive advantage. They have low cost of funds through branch and current accounts, savings account (CASA), and SME deposits. That is where we see the competition.

ED: Is it still fun being the chairman of a bank in a country like Vietnam?

THH: I think it is very exciting to be in this role in this period of time. Because I always think from an optimistic viewpoint. We are 23 years old, our technologies are not very developed as compared to other more developed markets. At the same time, because we are only 23 years old, we do not have all the legacy. In terms of technology and in terms of mindset, we can move much faster. It is more exciting to be in this market.

We are adjusting at all times. The exciting part is you see a lot of – 75% of the work force – our staff are female and they are very young. And even at the management level, about 50% of our staff are female too. So, we provide equal opportunities.

Putting customer experience first

ED: One thing about Vietnam is that the dynamism of the people has always been there. Anyone who visits Vietnam can see people who are willing to work – they work hard, they are smart. It is just that the potential never took off at the national level. But, at the institutional level, you have strong, smart people. You can direct them in whichever way you want.

THH: Yes, so we are very open and I am very glad to be part of ACB because of our DNA, our core value – integrity is the core foundation of our value and being innovative is part of that. We have five core values or pillars. For a company in a market with very fast changing technologies that is more focused on customer experience – customer behaviour changes without them realising that it is happening. That places us in a very sweet spot to make a difference and to grow. That is why I am excited to do this. Our legacy bad debt is not too widespread but it is very concentrated. We know exactly what it is, what are called the group six companies and they are fully disclosed.

When you look at our shareholder base, it is very interesting in a way. We have 20,000 shareholders, it seems quite big. At the same time, the core shareholders have always been committed to the bank. During the crisis, the bank was able to run for 20 days. Most banks operated for three or four days only. We sustained for 20 days. At that time our loan to deposit ratio (LDR) was 55%, because the core shareholders – which account for 85% to 90% of the total – stayed with us. That allowed us to have a uniform voice and unity to go through the crisis.

ED: Sounds exciting. This update is very good. Stanchart is likely to increase its stakes? And also, what are the intentions of other foreign shareholders?

THH: Dragon Capital is a fund, they are very unique in a way and they have been with us for 20 years. The other is Jardine, they can be considered a family because they joined ACB in when we were listed in our second year. Simon Keswick came to Vietnam more than 20 years ago, met my family, and I guess that is just what they decided.

Japanese banks have met us and there are few banks left for them to acquire. Going back to Standard Chartered, whether they increase or remain, it really depends on the whole strategy. It is not ACB. Standard Chartered is going through difficult times at the moment so they have to rethink their whole business model and strategy in Asia. Right now it is status quo, waiting for them to really reorganise themselves.

ED: There are very few countries with a 100 million population. So, if you have a good distribution base in the beginning, a competitor coming later would not be able to build the same.

THH: I think the biggest fundamental thing for us is trying to shift the mindset of our staff. What we are seeing is that once we do it at ACB, the industry seems to follow. It is just the nature of competition.

We are just trying to tell our people that it is not banking service anymore. People do not just go to banks. This is engrained in everyone for all this time. I think we are open and we are making a shift from that thinking about banking services, putting customer experience first. We are the first bank to introduce the concept of a customer experience department. Before that, when you look at customer service or customer satisfaction or customer complaint department – when I took over, I see that, we have the customer complaint department, but why do we wait for people to complain? Why do we not just make that into an experience that is a good experience?

ED: It is quite strange that some service organisations do not realise that when customers complain, they are engaged. You want to capture that, and it is the engaged customer that complains. The ones who are not your customer, do not even care.

THH: If you look at the more subtle message that we send out to everyone – to the industry – we just changed our logo. Now, we shifted to this mindset of people, of our staff and customers. The “customer is right” is at the centre and the staff surrounds it, everything is surrounding as a service and as an experience. That is part of the message that we are trying to communicate. We try not to just make this a change of the logo, but a change in our whole philosophy, our whole DNA, how we do our business.

ED: Are there other family members who are involved in the bank?

THH: Currently, my parents are board members. Before that, my father, Tran Mong Hung, used to be the chairman and then another chairman stepped in and after the crisis, I took over. The core shareholders required my father to be back on the board for a period of time to provide stability to other shareholders. He is a pretty well-known banker for over 20 years.

ACB was founded by a professor Nguyen Duc Kien. The regional founding group, composed of 20 people, were from the same college, either professors of economics or banking – and they come together. They formed the bank. We were one of the last banks whose licences were granted. We have a history of training and nurturing in our culture.