Opportunities, challenges and strategic solutions to accelerate financial inclusion in Vietnam in the digital age

Transcription

1 Opportunities, challenges and strategic solutions to accelerate financial inclusion in Vietnam in the digital age Presented at the conference: Digital technology The great engine of accelerating financial inclusion in Vietnam Dr. Can Van Luc HCMC, 19/5/ /5/2017 Ts. C.V.Lực/ Banking Vietnam

2 OUTLINE I. Financial inclusion in digital age II. Current situation of Financial inclusion in Vietnam: Overview, opportunities, and challenges III. Strategic solutions. 19/5/2017 Ts. C.V.Lực/ Banking Vietnam

3 I. Financial inclusion in the digital age 19/5/2017 Ts. C.V.Lực/ Banking Vietnam

4 1. Definitions of Financial Inclusion According to the Center for Financial Inclusion at Accion : Financial inclusion is a state in which everyone who can use them has access to a range of quality financial services at affordable prices, with convenience and respect. According to the Global Partnership for Financial Inclusion (GPFI) : Financial inclusion is a state in which all working age adults have effective access to credit, savings, payments, and insurance from formal service providers. 19/5/2017 Ts. C.V.Lực/ Banking Vietnam

5 The concept of Financial Inclusion (2) - According to the UN, Financial Inclusion is The access through multiple channels to financial services provided by sound and sustainable institutions at reasonable cost The aim is to increase access to financial services for individuals and SMEs - In developing countries, access to finance contributes to the development of the financial system and the mobilization of domestic resources, thereby, contributing significantly to the process of socio-economic development. 19/5/2017 Ts. C.V.Lực/ Banking Vietnam

6 Why financial inclusion should be concerned? Year 2014 (compared to )2011 Source: MasterCard Foundation (2016) 19/5/2017 Ts. C.V.Lực/ Banking Vietnam

7 Role of financial inclusion Financial inclusion Individual Enterprise Economy Easier in: Cost management Access to capital & consumption Minimizing risk and shocks Investing in education and health Saving for the future Securing payments and security Other? Easier in: Access to capital to expand production and development Minimizing risk and shocks Investing in property and human resources Minimizing transaction costs Securing payment and security Other? Easier in: Resource Allocation Diversifying the participation of economic sectors Creating jobs and increase creativity Increasing national savings Increasing economic efficiency Minimizing black credit; Contributing to social stability Other? Increasing the social welfare Increasing competitiveness, profit and growth Higher economic growth, reduced gender inequality and income 19/5/2017 Ts. C.V.Lực/ Banking Vietnam

8 Figure 1: The Institutional structure and products in the financial inclusion market - FinTech - Digital finance 19/5/2017 Ts. C.V.Lực/ Banking Vietnam

9 Figure 2: The products & services that financial inclusion can provide 19/5/2017 Ts. C.V.Lực/ Banking Vietnam

10 2. Financial inclusion in the digital age The role of digital technology towards the development of financial inclusion: Reduce transaction and management costs (80-90% according to Mckinsey); Minimize the need to establish physical branches; increase access to finance for people in rural, mountainous areas and women; Use various distribution channels including: Mobile, Internet banking, ATMs, POS, social networks, IoTs...; Diversify products and services and meet customer needs Enhance the ability to establish information infrastructure systems in remote areas Digital finance could boost GDP of emerging economies by US$ 3.7 trillion by 2025 (according to Mckinsey Global Institute). 19/5/2017 Ts. C.V.Lực/ Banking Vietnam

11 Figure 3: Relationship between financial inclusion and sustainable economic growth Job creation, poverty reduction, income unequality reduction Financial Inclusion Sustained economic growth Source: Adopted from Ezazul Islam, Bangladesh Bank /12/2017 Dr. C.V.Luc/ ASCCC

12 Figure 4: Fintech companies help financial inclusion 19/5/2017 Ts. C.V.Lực/ Banking Vietnam

13 Figure 5: Global investments in Fintech companies have grown rapidly over the past 3 years 19/5/2017 Ts. C.V.Lực/ Banking Vietnam

14 II. Current situation of Financial inclusion in Vietnam: Overview, opportunities, and challenges 19/5/2017 Ts. C.V.Lực/ Banking Vietnam

15 1. Current situation of Financial inclusion in Vietnam Table 1: Structure of Vietnam s financial system (Dec 2016) Source: Author's calculations based on data from SBV, SSC, MOF, ADB.. 19/5/2017 Ts. C.V.Lực/ Banking Vietnam

16 Current situation of Financial inclusion in Vietnam (2) Figure 6: Domestic bank credit (% GDP) in ,00 160,00 140,00 120,00 100,00 80,00 60,00 40,00 20,00,00 155,300 52, , , ,200 39,100 42,00 130,00 151, ,00 47,300 97,520 Source: World Bank, State Bank of Vietnam. In 2016, the proporition of Vietnam was 122%. 19/5/2017 Ts. C.V.Lực/ Banking Vietnam

17 Current situation of Financial inclusion in Vietnam (3) Figure 7: Stock market capitalization (% GDP) in 2016 Sources: Siblis Research, State Securities Commission of Vietnam. 19/5/2017 Ts. C.V.Lực/ Banking Vietnam

18 Current situation of Financial inclusion in Vietnam (4) Figure 8: Bond market capitalization (% GDP) in ,6 150 TPCP TPDN ,11 30,83 46,42 42,76 2,51 15,14 195,17 43,41 51,54 6,17 27,53 34,21 20,32 47,07 55,27 1,02 21,09 Source: AsianbondOnline (ADB 2017). This figure is lower than that reported by SSC = 27.3% of GDP at the end of /5/2017 Ts. C.V.Lực/ Banking Vietnam

19 Current situation of Financial inclusion in Vietnam (5) Figure 9: Insurance premiums (% GDP) in ,82 11, , ,57 3,44 5,05 5, ,73 1,9 1,8 0 Source: Swiss Re Economic Research & Consulting. This ratio of Vietnam in 2016 was about 1.91% GDP. 19/5/2017 Ts. C.V.Lực/ Banking Vietnam

20 Current situation of Financial inclusion in Vietnam (6) The institutions accelerating Financial Inclusion in Vietnam have not been synchronized; while enforcement is still weak The level of financial coverage is low, network of financial institutions is unevenly distributed, mainly in urban areas and few in rural areas The number of communes having commercial bank (CB) transaction points accounts for only 10% of the total number of rural communes and also accounts for about 10% of the total of CB transaction points nationwide. Micro-finance institutions (People's Credit Funds, NGOs, part of Agribank's and Vietnam Bank for Social Policies, etc.) operate rather ad-hoc; the legal framework still has many "gaps ; and microfinance has a small share (accounting for only 3.25% of total assets of financial system); anda narrow range of product-services with low quality, etc. Unofficial financial system (borrowed from family, relatives, friends and neighbors, black credit, suppliers credit, pawn shops... etc) hasn t been properly regulated. Credit to SMEs accounts for about 22% of total outstanding loans; and the access to finance is still difficult. 19/5/2017 Ts. C.V.Lực/ Banking Vietnam

21 Figure 10: Vietnam is in the below average" category on the Enabling Environment for Financial Inclusion 19/5/2017 Ts. C.V.Lực/ Banking Vietnam

22 Current situation of Financial inclusion in Vietnam (7) Figure 11: Top factors that hinder doing business in Vietnam Việt Nam Đông Á & Thái Bình Dương Tiếp cận tài chính 11,5 21,8 Hoạt động của khu vực không chính thức Lực lượng lao động thiếu kỹ năng 6,9 10,7 Obstacles Vận tải Thuế suất Tiếp cận đất đai Các quy định về thương mại và hải quan 2,7 4, ,2 9,4 11,1 9,3 Các quy định về lao động 3,4 3,6 Thủ tục hành chính thuế 3,2 3,4 Bất ổn chính trị 2,7 10, % of enterprises responded Source : WB s Enterprise Survey (2015). 19/5/2017 Ts. C.V.Lực/ Banking Vietnam

23 Current situation of Financial inclusion in Vietnam (8) Figure 12: % adults having a bank account (2014) ,9 52,8 41,8 50,7 30,9 80,7 28,1 78,1 35, Source: World Development Indicator (WB). 19/5/2017 Ts. C.V.Lực/ Banking Vietnam

24 F.13: Contributing to the % of citizens without a transaction account (2014) 19/5/2017 Ts. C.V.Lực/ Banking Vietnam

25 Current situation of Financial inclusion in Vietnam (10) Key indicators of basic financial access (e.g, the number of of commercial bank branches and ATMs per 100,000 adults) of Vietnam vs. peers is still low.. Figure 14: The number of commercial bank branches / 100,000 adults in 2015 Figure 15: The number of ATMs/ 100,000 adults in Source: WB /5/2017 Ts. C.V.Lực/ Banking Vietnam

26 Current status of financial inclusion in Vietnam (11) Figure 16: Outstanding deposits with credit unions and financial co-ops (% of GDP) Outstanding deposits with credit unions and financial co-ops (% of GDP) Trung Quốc Ấn Độ Nhật Bản Hàn Quốc Thái Lan Việt Nam Source: IMF /5/2017 Ts. C.V.Lực/ Banking Vietnam

27 Current status of financial inclusion in Vietnam (12) Figure 17: Outstanding loans with credit unions and financial co-ops (% of GDP) Outstanding loans with credit unions and financial co-ops (% of GDP) Trung Quốc Ấn Độ Nhật Bản Hàn Quốc Thái Lan Việt Nam Source: IMF /5/2017 Ts. C.V.Lực/ Banking Vietnam

28 Current status of financial inclusion in Vietnam (13) Bank cards in Vietnam (as of end-2016) About 111 millions cards (including 99 millions domestic cards and 12 millions international cards); Value of card transaction reaches VND1.87 Quadrillion, 300% higher than that of 2010; ATMs; POS/EFTPOS/EDC Problem: ATM cards are used mainly for cash withdrawals or transfers. The ratio of using bank cards especially credit card is very low. Figure 18: Percentage of credit card transactions (2014) 70,00% 60,00% 50,00% 40,00% 30,00% 20,00% 10,00%,00% 13,800% 59,300% 3,400% 1% 52,00% 54,00% 31,300% 17,00% 2,00% 3,700% 1% Source: WB. 19/5/2017 Ts. C.V.Lực/ Banking Vietnam

29 2. Opportunities and challenges in accelerating financial inclusion in Vietnam The main impact comes from: Changing regulatory environment Technological development (the 4 th industrial revolution and digital finance trends) Demographics and changing customer behaviors Increasingly competitive business environment Increasing international integration in financial sector, etc. Each effect will create different opportunities and challenges. 19/5/2017 Ts. C.V.Lực/ Banking Vietnam

30 Opportunities and challenges for financial inclusion (1) Trends/effect Legal environment: - The policy of non-cash payment - Decree 1726/QĐ-TTg on access to banking services - Law on supporting SMEs - Agricultural credit, rural credit, green finance programs - Microfinance programs, etc. Opportunities Financial inclusion enhancement is both a benefit and compliance responsibility Improve competitiveness when participating in the programs Cross-selling opportunities Helps improve markets, businesses and financial institution Challenges Increased legal risks Compliance costs Processs change Human resources Challenges to regulators C.V.Lực/HT-Banking VN

31 Opportunities and challenges for financial inclusion (2) Trends/Effects Industrial Revolution 4.0 and digital finance trends Opportunities Follower advantages Increased availability of modern products/services for customers Increased access to information, data, connections, collaboration, etc. Reduced cost, increased productivity Challenges Increasing technological risks Investment cost, R & D Changing business model & processes Human resources; financial knowledge of customers Challenges to regulators C.V.Lực/HT-Banking VN

32 Figure 19: Physical Banking Infrastructure, (World) 19/5/2017 Ts. C.V.Lực/ Banking Vietnam

33 Figure 20: Digital banking penetration (2014) Source: Survey of McKinsey

34 Opportunities in the digital age The potential of accelerating financial inclusion in Vietnam Source: Website (We are social). Digital commerce is expected to grow 15%/per year from (according to Columbus, 2016). 19/5/2017 Ts. C.V.Lực/ Banking Vietnam

35 Opportunities and challenges for financial inclusion (3) Trends/Effect Changing demographics Changing customer behaviors Opportunities Provide products/services to customers Increase the number of customers, market share and revenues Learn from customer requirements Pressure for reform and business restructuring Challenges To adopt Customercentric business model Ability to meet customer needs Customer loyalty risks To change processes Human resources; financial knowledge of customers Challenges to regulators C.V.Lực/HT-Banking VN

36 Opportunities and challenges for financial inclusion (4) Trends/Effect Competition: - Development of nonbanking financial institutions (Fintech) - Development of substitute products/services (Bitcoin, crowd funding, shaddow banking, etc.) Opportunities Collaboration & partnership Merger & acquisition Develop new products services, diversify risk management tools & operation Reduce transaction cost and improve capacity of providing services Challenges Increased competition Cooperative strategy matches the partner? Risk management capability To change processes; human resources Challenges to regulators C.V.Lực/HT-Banking VN

37 Opportunities and challenges for financial inclusion (5) Trends/Effects Deeper international integration Opportunities Expand market, customers, partners, products; and available human resources Reduce cost and improve competitiveness Mobilize and allocate capital, strategic partnerships Increased connectivity, colaboration, partnership Challenges Weak competitiveness Risk of a domino effect, withdrawals, disputes Reduced autonomy Risk management capability, brain drain To change processes; human resources Challenges regulators C.V.Lực/HT-Banking VN

38 III. Suggested strategic solutions 19/5/2017 Ts. C.V.Lực/ Banking Vietnam

39 Framework for accelerating financial access Access and usage of transaction accounts Engine/ solutions to accelerate financial access and usage productsservices Design Distribution channels Financial knowledge and awareness Maximize repeated transactions/ cycles Key factors Financial insfrastructure and ICT Legal & management framework Commitments of public and private sector Source: based on BIS /5/2017 Ts. C.V.Lực/ Banking Vietnam

40 Figure 21: Model of state intervention to accelerate financial inclusion Source: UNCDF VN 19/5/2017 Ts. C.V.Lực/ Banking Vietnam

41 Table 2: Which factors may help double financial inclusion by 2020? Source: UNCDF /5/2017 Ts. C.V.Lực/ Banking Vietnam

42 Other solutions for Vietnam 1. To consistently implement the Scheme of non-cash payment 2. To successfully implement the Government s Decree 1726 (2016) on increasing access to banking services; and microfinance development. 3. To develop a more balanced financial market; 4. To successfully implement the restructuring plan of credit institutions, securities companies and dealing with NPLs; along with the promotion of corporate governance in financial institutions; minimizing administrative procedures 5. To develop digital finance, Fintech; associated with restructuring of distribution channels 6. To promulgate and implement the Law on Supporting SMEs 7. To promote financial education and human resources development of the financcial sector; together with a vigorous education-training reform 8. To enhance payment risk and technological risk management 9. To enhance international cooperation, including harmonization of standards and policies 10. To make a development strategy for financial inclusion; build financial inclusion database and data analytics. etc. 19/5/2017 Ts. C.V.Lực/ Banking Vietnam

43 Other solutions? - To seize opportunies and minimize challenges from Industrial Revolution 4.0?? + Agility, Flexibility, Speed (Schwab, Chairman of WEF) + To develop digital finance vs. risk management - Other? Q& A! Thank you all! 19/5/2017 Ts. C.V.Lực/ Banking Vietnam