Numerous new consumer finance companies have started to penetrate the market with strong sales growth. However, many banks still persist in standing out of this lucrative but risky segment.
Race for cash loans
Nguyen Mai Long, Managing director of Easy Credit (the consumer finance division of EVN Finance) is very optimistic about the growth potential of this sector. The number of borrowing applications per month of the company has reached three digits, although the absolute value is not significant.
“The consumer credit market will continue to grow strongly, because a large number of people still do not have access to bank credit yet,” Mai Long believed.
Similar to Easy Credit, two other rookies SHB Finance and Mcredit are also growing very well. These three companies all target cash loans. According to a research by FiinGroup, these new members have made consumer credit market more competitive.
“Mcredit has had an impressive performance when accounting for more than five percent of the market share only in the second year after it debuted, thanks to the focus on cash loans; followed by SHB Finance and Easy Credit,” said FiinGroup’s experts.
According to FiinGroup, the market share picture of finance companies is gradually changing in the direction of narrowing the market share of big companies. Despite accounting for the largest market share, FE Credit’s market share fell to 47.3 percent in 2018 (compared to nearly 49 percent in 2017. The market share of Home Credit also dropped from 17.3 percent to 16.9 percent. Numerous other finance companies such as HDSaison, Prudential Finance, Toyota Financial, etc. have also experienced decline in market share, while the market share of some small companies and new members is increasing.
In the market, finance companies are divided into two groups: the units which provide hot loans and accept high risk provisioning including FE Credit, Mcredit (growth rate exceeding 254 percent, bad debt ratio of up to six percent), etc. and the units which prioritise better asset quality and set higher capital safety targets, including Mirae Asset, JACCS, and Prudential Finance.
Many banks still stay out of the game
Despite the high lending rates and large profit margin, not many banks choose to set up or acquire finance companies. In the context when finance companies are boosting cash loans, which also means that the bad debts are at risk of rising, many banks are more cautious.
Nghiem Xuan Thanh, chair of the Board of directors of Commercial Joint Stock Bank for Foreign Trade of Vietnam (Vietcombank) said that “In the next five years, the bank has no policy to establish a consumer finance company. The reason is that offering consumer loans at high interest rates are not the taste of Vietcombank. Lending at high interest rates will certainly lead to high bad debt, thereby involving the bank’s image and responsibility.”
Nguyen Hung, general director of Tien Phong Commercial Joint Stock Bank (TPBank) also said that many consumer credit models through the Internet are booming. However, banks cannot lend money recklessly like that, the lending must follow standards and interest rates should be reasonable.
According to banking experts, choosing to invest in a consumer finance company or not depends on the risk appetite of each bank. However, the greater participation of finance companies is essential in the context of the widespread black credit.
In fact, it cannot be denied that consumer finance companies are the “geese that lay golden eggs” of many banks. According to Nguyen Duc Vinh, general director of VPBank, FE Credit is still “an important and effective business model” of the bank, which contributes up to 44 percent to the bank’s consolidated profit.
