After a period of time when banks tended to buy back or set up financial companies, a series of banks planned to transfer financial companies, such as Vietnam Prosperity Joint-Stock Commercial Bank (VPBank) to sell their shares at FE Credit; Saigon Hanoi Commercial Joint Stock Bank (SHB) sold some capital at SHB Finance. What caused this trend? Bank Times reporter exchanged a quick talk with Vo Tri Thanh Member of National Financial and Monetary Policy Advisory Council to learn more about this issue.
In your opinion, what is the reason banks want to divest from a financial company?
I think that maybe at this stage, like other businesses, banks are facing difficulties from the impacts of Covid-19 so they are looking to restructure their finances. Moreover, they want to devote new financial resources to support other areas that need more investment.
Is it up to the time when the financial company is no longer profitable so banks are no longer interested in?
I think not. In essence, this business segment is still quite attractive, especially for foreign investors. If the operation of financial companies is well-executed, carefully, this is a potential area that promises to bring profits like FE Credit used to be the important subsidiary of VPBank. I think, in the situation of Covid-19, banking business activities encountered difficulties and increasing bad debts affected profit. Hence, at this time, banks want to reduce the pressure of bad debts from financial companies, focus on more core activities.
More importantly, if banks see any investors interested, paying a good price, then they will want to sell. Because banks now want to consolidate their financial capacity and increase their assets. In fact, the potential of Vietnam’s consumer finance is quite large.
Could you specify the potential of this market?
It can be said that the control of Covid-19 in Vietnam is quite good and highly appreciated. This is a remarkable success of Vietnam. From there, it opens up many development opportunities for Vietnam’s economy in the post-Covid-19 period. As the prospect of business activities of enterprises recover more and more clearly, economic growth and income of Vietnamese people are positive, the demand for consumer loans increases while the size of the consumer finance market is still modest.
In addition, in total consumer debts of 1.68 quadrillion dong), outstanding loans of financial companies accounts for about 7.7 percent (equivalent to 130 trillion dong), so the potential for financial development is huge. Compared with other Asean countries, the proportion of consumer lending in Vietnam is quite low. Currently, the government and businesses have incentive policies to stimulate consumer demand to promote economic development. In addition, the demand and development orientation of a number of credit institutions is to promote individual lending while consumer and borrowing culture of people are increasingly changing. In particular, consumer finance plays an important role in contributing to repelling shadow banking. Especially during the period of both economic recovery and disease control today, the segment of small and substandard customers inaccessible to bank credit increases. Consumer finance will be the best choice for them.
Although the opportunity for the consumer finance market is huge, in my opinion, financial companies need to learn and research on consumer behaviour in order to select the appropriate customer segment. Consumer behaviour is quite important to help financial companies effectively exploit customer segments.
For example, currently, the population structure is young but consumer loans rely more on the middle class. In addition, with current technology, it is possible to introduce products that are more suitable to many audiences, interact more with customers to limit the risk of shadow banking. Consumer finance will be linked to jobs, lifestyle behaviours, beliefs, macro and micro financial risks. Besides, at present, the Law governing consumer lending is basically the Civil Code while other countries do not apply that. In the long term, Vietnam needs the Law on Financial Consumer Protection.
So, will Merger and Acquisition (M&A) in this market be more vibrant?
I think it is unlikely to be vibrant this year. The above deals are just a phenomenon not a trend yet. At this time, the cash flow of foreign investors investing in Vietnam, especially the financial sector, is still cautious. The proof is that from the beginning of the year until now, M&A deals with the participation of foreign investors have been quite small with small scale. In my opinion, at the moment, the capital of foreign investors is still in a defensive state and has not expanded. Especially when the world economy is uncertain, it is difficult to expect strong investment in this field.
