Consumer lending services in Vietnam tend to thrive thanks to the increasing needs of people. The fact that many new credit institutions entered the market has demonstrated great potential of consumer finance industry in Vietnam, but competition pressure from that is also more intense.
With the population of more than 90 million, most of them are from young generation, Vietnam is considered one of the countries with the great potential of consumer finance. According to data of the Credit Information centre (CIC)State Bank of Vietnam (SBV), consumer credit growth rate in Vietnam is currently up to 36 percent per year.
The main driving force behind consumer credit growth is the relatively large market demand, when the number of working age population is high (about 70 percent). Meanwhile, the number of people with credit transactions recorded officially through banks and financial companies is only about 33.5 million people. Therefore, the growth potential of the market is prominent.
Consumer lending in Vietnam has seen remarkable growth since 2015. According to the National Financial Supervisory Commission, Vietnam’s consumer finance market increased from 50.2 percent in 2016 to 65 percent in 2017, the market share of consumer loans in the total credit market increased from 12.3 percent in 2016 to 18 percent in 2017.
The wave of consumer lending is understandable when the statistics show that Vietnamese people increasingly prefer borrowing to spend. Accordingly, consumer loans of Vietnamese residents by the end of 2018 amounted to more than five billion US dollar. In this context, financial expert Huynh Trung Minh said that financial institutions would continue to target the potential consumer market. This was also the reason a series of credit institutions transferred to invest heavily in technology to exploit the market, and expected great profits.
In fact, credit institutions’ profits have been steadily climbing in the past few years, attracting the participation of new firms, making competition pressure increasingly fierce. Although the contribution to the parent bank is estimated to have decreased compared to the past, it is still about 36 percent, but by the end of 2018, FE Credit was a subsidiary contributing the highest proportion to total profit before tax of 9.2 trillion dong of Vietnam Prosperity Joint-Stock Commercial Bank (VPBank). According to HSC Securities Company, FE Credit has contributed nearly half of the profit to the parent bank.
Return on assets (ROA) and return on equity (ROE) of the company reached 2.5 percent and 22.9 percent respectively. Net interest margin (NIM) was nine percent. At the same time, FE Credit said, last year, it achieved a positive growth rate when the number of new loan accounts increased by 30 percent, the number of customers rose by 23 percent compared to 2017.
At the end of 2018, HD Saison achieved a pre-tax profit of 900 billion dong, an increase of 73 percent compared to 2017, contributing over 25 percent to the total profit of more than four trillion dong of parent bank HCM City Development Joint Stock Commercial Bank (HDBank).
In-depth analysis of customer loan portfolio, HSC said that last year, parent bank HDBank recorded credit growth of 18.3 percent, within the limit allowed by SBV. Meanwhile, HD Saison’s loan growth was 12.7 percent. HSC assessed that the prospect of HDBank’s profit in 2019 was very positive, expected to grow by 27.3 percent to 5.098 trillion dong. This plan is based on assumptions that customer loans grow by 18.2 percent compared to 2018, reaching 145 trillion dong. In which, HDBank loans grow by 18 percent and HD Saison grow by 20 percent.
Facing the heat of Vietnam’s financial and consumer markets, many banks said that they would soon establish or acquire other finance institutions to boost consumer lending, exploit market potential and share “a piece of cake” of one billion US dollar.
According to industry experts, the current market penetration rate of consumer finance institutions is only 25 percent to 30 percent of domestic potential. Meanwhile, compared to neighbouring markets such as Thailand, Indonesia or South Korea, penetration rate in Vietnam is two to three times higher than the current level. Therefore, the opportunity for credit growth is still large and the market will continue to grow strongly in the future.
It is the strong growth and attraction of consumer finance that attracts many financial institutions, domestic and foreign investors to participate in the market. In 2018, three more finance institutions entered this playground, including Viet Credit (converted from Xi Mang finance institution), SHB Finance and Easy Credit. In the coming time, the market will welcome other finance institutions under Orient Commercial Joint Stock Bank (OCB) and Asia Commercial Joint Stock Bank (ACB).
Not only domestic financial institutions have shown their interest in the consumer finance market, but also foreign capital flows are soon eyeing this market. For example, Lotte Group (Korea) acquired Techcom Finance in an M&A deal worth 1.7 trillion dong. Previously, in September 2017, Shinsei Bank (Japan) acquired 49 percent of capital at MB Shinsei from Military Commercial Joint Stock Bank (MBMBBank). Shinhan Bank expanded its retail segment through the acquisition of ANZ retail segment in Vietnam. At the same time, through Shinhan Card, Shinhan bank spent $151 million (about 3.4 trillion dong) to buy Prudential Finance.
Dmitry Mosolov, general director of Home Credit Vietnam, said that Vietnam was now a country with the highest proportion of consumer spending in economic growth (GDP) in Asean, in which working age accounts for 70 percent of over 90 million population. However, the number of people with credit transactions recorded through banks and financial companies only reached about 33.5 million. Thus, the potential for consumer finance industry to exploit is huge.
According to financial experts, Vietnam’s population will continue to increase and reach 100 million by 2025; this area is very potential for a booming consumer finance channel. Home Credit also achieved many results in Vietnam.
Kalidas Ghose, general director and vice Chair of FE Credit Board, said that Vietnam market had witnessed a very strong growth of consumer finance industry from 40 percent to 50 percent in the last three years since 2015. In 2019, because the market size has expanded a lot, FE Credit expects to keep its growth stable at 20-25 percent.
Compared to foreign financial institutions, the ones owned by domestic banks still dominates the market, including FE Credit of VPBank, HD Saison of HDBank, because of the cultural understanding of Vietnamese consumers to provide suitable products.
However, any financial institutions, especially new businesses entering the consumer finance market in Vietnam must face the biggest challenge of customer risk management, which is caused by the lack of information to verify customers, as well as limited data warehouse.
At FE Credit, in order to overcome the lack of consumer behaviour data, the company has partnered with key strategic brands such as Telco and applied new risk assessment methods based on resources proving customer income such as phone bills, electricity bills or other financial transactions.
Besides, consumer finance is a very specific industry, requiring management team to have high expertise to control the operation process and associated risks. Currently, the launch of new products and services, wide distribution network, experienced team and use of digital platforms will make their products more accessible to customers, but daily business activities need to be protected by a solid risk management process.
The whole Vietnamese market now has about 17 consumer finance companies operating. According to the evaluation of financial and banking experts, TS. Le Xuan Nghia, Vietnam’s booming consumer credit has just begun and is being driven by urbanisation, rising incomes and a shift to the household financial sector. Consumer finance has partly pushed back shadow banking, but consumer lending interest rates should also be adjusted by financial institutions at a more appropriate level, instead of going up too high (50-60 percent per year), making consumer borrowers face pressure to pay interest.
