Industrial revolution 4.0: Developing opportunities for Vietnamese commercial banks

 INDUSTRIAL REVOLUTION 4.0: DEVELOPING OPPORTUNITIES FOR 
VIETNAMESE COMMERCIAL BANKS
Doan Phuong Thao, PhD. 
Ngo Thanh Xuan, MBA. 
National Economics University
Abstract
Today, the world is entering the Industrial Revolution 4.0. This revolution is a great 
trend, affecting the socio-economic development of each country, each region and the 
world, including Vietnam. This wave of revolution also creates opportunities for 
significant changes in the banking sector in Vietnam, although it is not in the strongly 
influenced areas. As the matter of fact, this paper studies the current status of Viet 
Nam's commercial banking system in the period of 2014-2017, thereby, proposing 
some recommendations for the improvement of Vietnamese banking system in the 
context that influence of Industrial Revolution 4.0 is becoming increasingly powerful 
in Vietnam. 
Keywords: Industrial Revolution 4.0, commercial banks, State Bank of Vietnam. 
1. Introduction 
Industrial Revolution 4.0 was first mentioned in the High-Tech Strategy Action Plan 
adopted by the German government in 2012. According to Professor Klaus Schwab, 
President of the World Economic Forum, Industrial Revolution 4.0 is a term that 
encompasses a wide range of modern automation technologies, data exchange and 
manufacturing. Industrial Revolution 4.0 is a combination of technology in the fields 
of physics, digital and biotechnology, creating entirely new possibilities and profound 
impact on the political, social, economic aspects of the world. Then, robots and 
computers with artificial intelligence can possibly evolve to replace human beings in 
the judgment and management of complex systems. As the result, Industrial 
Revolution4.0 has been affecting the socio-economic development of each country, 
each region and the world, including Vietnam.
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 Responding to impacts from the Industrial Revolution 4.0, the commercial banking 
system has made some significant changes in order to promote the socio-economic 
development of Vietnam in the context of international economic integration. In fact, 
with strong growth both in terms of quantity and size, by the end of 2017, Vietnam’s 
banking system has narrowed down to two policy banks, five state-owned commercial 
banks, and increased to about 40 joint-stock banks, 10 joint-venture banks along with 
the availability of other 100% foreign-owned banks and foreign branches in Vietnam. 
However, in the process of development, the banking system of Vietnam still has 
many limitations, forcing banks to take vigorous steps to ensure sustainable growth.
Furthermore, on the management side, the State Bank of Vietnam has been actively 
putting through many activities of the sector to concretize tasks under Directive
No.16/CT-TTg dated May 4, 2017 of the Prime Minister on enhancing the capacity to 
approach the Industrial Revolution 4.0. Accordingly, the legal corridor was born to 
support the operation of commercial banks such as payment system, development of 
information technology infrastructure, security, confidentiality, etc. and in particular, 
reinforcing the communication and scientific research on the application of 4.0 
technology in the banking industry.
2. Research Methodology 
The article uses the method of data synthesis and analysis. Based on the data
collection, statistics and synthesis regarding the impact of Industrial Revolution 4.0 on
system operations of global commercial banking system and of Vietnam, which are 
found in reputable articles, scientific journals, archives and mass publications of 
commercial banks as well as financial organizations, the authors then analyze impacts
from the Industrial Revolution 4.0 to commercial banks in Vietnam.
3. Research Content 
3.1. Opportunities for Vietnamese Commercial Banks in the Context of the 
Industrial Revolution 4.0
In the period of 2014-2017, Vietnam's economy achieved a macroeconomic stability 
with an average economic growth rate of 5.8%, moderate inflation and export surplus, 
increasing foreign exchange reserves and stabilized exchange rates. This contributed 
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 significantly to the positive change in the operation of the commercial banking system 
with regards to the successful restructuring program of commercial banks. In the 
context of the Industrial Revolution 4.0, the opportunities for the commercial banking 
system in Vietnam are still at early stage compared to other countries in the region in 
terms of:
First, there is an opportunity to change the scale of capital. Vietnamese largest banks 
by capitals such as Agribank, Vietcombank and BIDV are still smaller compared to 
the largest banks in the region (Malaysian Maybank has more than 4,000 million US
Dollars in capitals, BDS Bank of Singapore has over 9,000 million US Dollars in 
capitals, Bangkok Bank of Thailand has more than 3,000 US Dollars in capitals), so 
the pressure to increase working capitals is ma ... ement model of banks is unclear, 
overlapping functions and duties. The three-round model of control at banks is 
relatively new, so it has not been implemented as effectively as expected. The 
approach to implement the risk management framework mainly depends on the 
specialized functions. Therefore, there are still existing risks in retailing activities, 
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 especially with banks stressing to increase market share, pressure on business targets, 
building products quickly to market while risk and quality management have not been 
keeping up. 
Sixthly, Industrial Revolution 4.0 brings the opportunity to improve information 
technology support in banking operations. Artificial intelligence is the focus of 
development of many large technology companies in the world. Consequently, 
commercial banks must apply information technology in the portfolio risk 
management, consumers management, data facilities management and above all, they 
must always grasp the trend, the application of information technology to ensure the 
safe and effective banking operations. Presently, many Vietnamese banks have started 
the digital transformation process, deploying a number of innovative banking services 
such as TPBank with LiveBank; VPBank with Timo digital banking application; 
Vietcombank with digital space; MB with ChatBot virtual assistant application to 
serve 24x7 customers on social networks, etc. With this requirement, the digital 
banking model operating on the basis of technology through digital devices connected 
with computer software through the Internet environment has in fact been and will 
change the whole system structure of the banks. Industrial Revolution 4.0 will also 
provide new insights into how communication and business processes can be 
transformed through interactions and communication. As the telecommunications 
infrastructure grows, conversations tend to be video-calls with increased levels of 
quality and stability. Therefore, customer care at banks may also be required
additional telemarketing skills. In the distant future, virtual-reality and holographic 
technology will be able to completely replace human communication. Besides, 3D 
calls like in fiction films may not be far off. In addition, information technology is 
also increasingly involved in matters such as liquidity risk management, credit risk, 
interest rate risk, and operational risk at international standards. In response to these 
requests, in recent years, the number of IT staff and IT infrastructure serving the bank 
have been constantly growing in both quantity and quality; the database has been 
encrypted and computerized. Better support in ensuring information is provided for 
the planning and implementation of policies. Core-banking systems are applied in risk 
management, accounting system, payment operations, etc. at most commercial banks. 
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 However, the process of gathering, screening and processing data is always in 
shortage of the database. The core-banking system have several different varieties 
such as Flexcube (Oracle) or T24 (Temedos) and sometimes they are jointly used by 
one bank. The fragmentation in data management, which does not meet 
standardization also leads to system inefficiencies. This shows that although 
commercial banks have made active investments in technology development, the pace 
of development has not been keeping up with the rapid growth of the world. 
Seventh is the opportunity to enhance the quality of human resources. The biggest 
pressure of the commercial banks in Vietnam is the shortage of high-quality human 
resources, especially international banking and finance professionals. Both redundant 
and non-existent human resources are commonly found in many Vietnamese banks in 
specialized fields such as risk management, international payment, international 
investment, development strategy, etc. It is not only a matter of professionalism but 
also the professional ethics of bankers are big challenge to the security of the banking 
system. 
3.2. Recommendations 
Industrial Revolution 4.0 conducts many opportunities for Vietnamese commercial 
banking system and speeds up the process of innovation in banking towards 
sustainable development. From the above analysis, in the upcoming time, 
opportunities from Industrial Revolution 4.0 will only really bring about sustainable 
development for Vietnamese commercial banks from the efforts of commercial banks 
themselves to continue building the comprehensive operating system, synchronous 
implementation, compliance discipline in order to overcome the remaining limitations; 
and together with the active support from the management agency. Therefore, the 
authors propose some specific recommendations as follows:
3.2.1. For commercial banks 
Firstly, financial autonomy should be encouraged in order to promote the 
independence of commercial banking operations. This is considered a prerequisite 
because like other enterprises in the market economy, commercial banks must be fully 
responsible for business results and financial activities within the framework of the 
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 law for the aim of sustainable development. Financial and business autonomy will 
allow commercial banks to enact their independent creativity and push their capacity 
beyond the challenges they face without relying on the State’s support. In addition, 
financial autonomy is meaningful for the implementation of the capital growth policy 
and financial capacity of each commercial bank, while also ensuring the operating 
capacity, increasing transparency in business operations, demonstrating consistency 
with the requirements of socio-economic development, legal rights and effectiveness 
in the context of the Industrial Revolution 4.0. Transparency in the operation of 
commercial banks means that commercial banks must report to the State Bank and 
publicly disclose their financial data on business activities to the whole market
economy. Besides, commercial banks must publicize their numbers on the mass 
media. In other words, information transparency will help commercial banks clarify 
their activities with consumers in accordance with compliance to the law and help 
raise responsibility of commercial banks. As the matter of fact, management agency 
will be able to supervise and ensure the smooth operation of commercial banks 
towards safety and sustainable development.
Secondly, to strengthen financial capacity and promote compliance with safety 
standards in banking operations. To ensure that commercial banks are able to meet 
the need to expand and develop their business in a safe way and in line with 
international standards and the Basel Committee, all commercial banks are first 
required to maintain equity capital at appropriate level to total assets so that a
minimum capital adequacy ratio of does not exceed over 12%, overdue debt ratio of 
less than 3% and meeting other Basel II and Basel III standards. It can be seen that the 
strengthening of financial capacity is not only reflected by the increase in charter 
capital, especially the increase of charter capital in accordance with regulations of the 
SBV, because at the time of meeting the requirements of the SBV, the commercial 
banks can ensure the safety and adequacy of capital. However, if commercial banks 
increase their business scale later (increasing scale of mobilization and lending), the 
safety situation will be broken again.Therefore; the increase of banks’ financial 
resources must be maintained regularly. The commercial banks must consolidate and 
develop sustainably in order to regain the public's trust by attracting all sources of 
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 capital in the form of non-financial assets, cash, gold and foreign currencyfrom the 
residences. Based on that, the financial capacity of commercial banks will be 
improved, which will be an opportunity to increase investment, modern equipment 
and technology in line with the new organizational model and operating mechanism in 
order to compete with foreign banks in the region and globally.
Thirdly, to diversify business activities and enhance the ability to penetrate deeply
into the economy. Commercial banks need to diversify their business to penetrate the 
economy by developing and perfecting their products, approaches to customers,
consolidating their distribution channels to provide customers with products and 
services that are effective and ensuring the sustainable development of the banks;
enhance the provision of utility banking services to increase fee incomes and to reduce 
risk; apply the development of information technology and e-commerce to provide 
modern and convenient services such as telephone banking, internet banking, home 
banking services, etc.
Fourthly, to further enhance the capacity of leadership and management. Commercial 
banks need to restructure operations from headquarters to branches according to some 
models of other modern commercial banks; to expand agent relationships, businesses
cooperation, product development, application and technology transfer with foreign 
financial institutions; to expand the scale of business associated with strengthening the 
capacity of self-inspection, risk management, ensuring safety and business efficiency; 
to ensure that internal auditors, internal control systems operating independently and 
professionally; to develop management systems in accordance with international 
standards and practices of commercial banks; gradually overcome the shortcomings in 
the operations due to inadequate qualified staff and deep trainings. Currently, not 
many banking managers of all levels in Vietnam are trained in basic management and 
management for commercial banks, thus, few commercial banks have business action 
plans and medium-term to long-term developing strategies. More often, every 
commercial bank simply has a slogan or business philosophy. Therefore, the 
management of commercial banks should be prioritized in the direction of 
standardization and individuals take responsibility for the results of business 
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 operations. Leadership and management must be professionalized, have the level of 
both basic management and management for commercial banks; have expertise and 
practical experience. In parallel with the development of management and human 
resources, commercial banks need to build a business strategy to identify the market 
segments, customers and products for those target markets. Based on that, policies on 
mobilization, lending, investments, reserves and risk management should be 
formulated to ensure business efficiency and the safety of commercial banks. 
Fifthly, to take more positive actions in technology modernization. International 
integration and competition in the context of Industrial Revolution 4.0 is an 
indispensable trend, forcing commercial banks to be developed in a compatible 
manner in order to not only compete in the country but also compete with global 
financial intermediaries. The investment in technology modernization should ensure 
the ability for Vietnamese commercial banks to connect and be compatible with the 
banking system of countries in the region and the world. To do so, first of all 
commercial banks need to develop investment projects for technology development; 
enlist the help of the State Bank of Vietnam and international organizations such as 
the World Bank to implement investment projects and modernize technology 
according to international standards. Next, each commercial bank needs to develop a 
development strategy, identify the target market, constantly improve the quality of 
products and services and distribution channels. 
Sixthly, continue to develop quality human resources with professionalism, 
compliance and business ethics. Educational levels of Vietnamese banking staff 
(bachelor's degree, master's degree, PhD / total human resources) may be higher than 
any commercial banks staff in the world. However, comparing with labor 
productivity, professionalism, sense of compliance, etc., Vietnamese commercial 
banks need to strive to further improve the capacity of the staff. It is time for the 
commercial banks to seriously consider the international standards and recruitment as 
well as trainings to develop quality human resources with professionalism and 
business ethics; prioritize training, equipping soft skills for bank staff to enhance 
professionalism, compliance capacity and professional sense. 
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 3.2.2. For the State Bank of Vietnam 
Industrial Revolution 4.0 will continue to fabricate rapid changes in business 
operations of the commercial banks, so the State Bank of Vietnam should further 
strengthen the management of the operation of commercial banking system according 
to international standards and codes of conducts to ensure safety and efficiency in 
replacement of incidental and rigid management. This is very important because the 
direction and leadership of SBV will determine the concrete actions of commercial 
banks in the right course and towards sustainable development. Moreover, in order to 
timely prevent systemic risks and other potential risks, the State Bank of Vietnam 
should ensure effective supervision, increase management role through the legal 
system of banking operations and to strictly handle violations of commercial banks. 
Furthermore, the SBV should regularly review and finalize legal documents to limit 
the inconsistency, duplication and to comply with international standards, yet still be 
applicable in the context of Vietnam's situation. This is to strengthen the law 
enforcement as well as ensure the compliance of commercial banks. 
4. Conclusions 
In the context of international economic integration, the effects from the Industrial 
Revolution 4.0 are becoming more powerful. The Vietnamese banking system has 
been receiving many opportunities but also facing a number of challenges in the 
development process. The demands for innovation and the direction of international 
practice therefore becomes more specially concerned. In order to achieve business 
efficiency, to ensure sustainable development, to move banking activities forwards on 
a regional and global levels, Vietnamese commercial banks must strive for special 
efforts, alongside with supports from thegovernment and regulators so that the 
banking system meets its objectives.
References
1. IMF Report on Vietnam's Economy (2014-2017). 
2. Scheme (2012), Project on restructure of credit institutions in the period 2011 - 
2015, according to Decision No. 254 / QD-TTg dated March 1, 2012. 
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 3. Vietnamese Commercial Banks (2014-2017), Annual Report. 
4. https://www.sbv.gov.vn
5.https://www.nfsc.gov.vn
6. https://www.chinhphu.vn
7. https://www.gso.gov.vn
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