In recent years, many banks have planned to establish financial companies such as Orient Joint Stock Commercial Bank (OCB), Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV), Asia Joint Stock CommercialBank (ACB) and Saigon Thuong Tin Joint Stock CommercialBank (Sacombank) but not yet completed. According to the forecast, this situation will be difficult to change, when the State Bank of Vietnam (SBV) strictly controls consumer finance activities.
A bank’s leader said that credit and consumer lending activities had been deployed for a long time, but had not dared to go into high-risk areas. If a financial company was established, the bank would expand its audience, since all consumer lending activities, including credit cards, would be transferred here.
Another bank’s representative shared that people’s life standard was increasingly high, demand for consumption rose notably. In order to specialise in consumer credit and boost the retail segment, the banks need to set up their own finance companies.
However, in recent years, only MB Shinsei Company has been licensed and launched by State Bank of Vietnam (SBV) in September 2017. This company has chartered capital of 500 billion dong, in which 50 percent owned by Military Joint Stock Commercial Bank (MB), 49 percent owned by Shinsei Bank Limited (Japan), and one percent owned by Xuan Thanh Construction and Investment Development Company.
Previously, Vietnam Prosperity Joint Stock Commercial Bank (VPBank) was allowed to convert consumer credit department into affiliated financial companies named FE Credit. Most other banks had to convert consumer credit departments or bought financial companies.
For example, Southeast Asia Joint Stock Commercial Bank (SeABank) bought Post and Telecommunication Finance Company (PTF) for 710 billion dong in the form of contributed capital transfer. Le Thu Thuy, Chief Executive Officer (CEO) of SeABank, said that the acquisition of PTF was an important milestone for the development phase of the bank. At the same time, this was a critical step to realise SeABank’s aspirations in retail banking development strategy, diversify products and services, and aim to become a leading retail bank.
ACB converted a finance leasing company into a finance company for consumer credits after a long time of not establishing a new financial company. Some financial companies entered the market last year, mainly in converted form such as VietCredit converted from Cement Finance Company (CFC); SHB Finance launched the market in August 2018, formerly known as the financial company of Vietnam CoalMineral Industry Group (Vinacomin) acquired by Saigon-Hanoi Joint Stock Commercial Bank (SHB) and converted its functions; Easy Credit is a brand of EVN Finance Joint Stock Company (EVN Finance).
Orient Joint Stock Commercial Bank (OCB) has not established it affiliated financial company as expected, so that bank continued to promote small loans from individual customer department. TienPhong Joint Stock Commercial Bank (TPBank) asked shareholders for the acquisition of 100 percent capital of a financial company at the 2019 Shareholders Meeting.
Both customers and banks benefit when banks establish financial companies and transfer consumer lending to these companies. Customers who need to borrow small consumer loans will easily access bank loans with simpler procedures, shorter approval time and no security assets. Banks increase their market share and expand their retail business. Furthermore, banks will separate the risk customer segment and develop the retail market without worrying about bad debt burden.
In fact, most banks expected to have a subsidiary financial company. However, it was not easy for banks to establish this type of company. According to current regulations, in order to participate as a founding shareholder of a non-banking financial institution (NBFI), the enterprise must have a minimum equity capital of 500 billion dong and a minimum total asset of one trillion dong in three consecutive fiscal years before the year of application. This enterprise must also comply with the capital contribution in accordance with the relevant laws. If a founding shareholder is a commercial bank, the necessary condition is the minimum total asset of 100 trillion dong, making full provisions according to regulations, not violating the limits and so on. According to banks’ recent data, there are about 20 banks not eligible to establish financial companies.
In the context of fast growing consumer finance, the risk of bad debt is unavoidable. Therefore, SBV is seeking comments to amend Circular 43/2016/TT-NHNN on consumer loans of financial companies in the direction of tightening cash lending activities. It is expected that the proportion of cash loans of financial companies should not exceed 30 percent of the total outstanding loans of these companies.
