Consumer lending in Vietnam is considered to have a lot of potential but this market is also facing many challenges and risks. Is there any way to both strengthen the State management, but also “pave the way” for consumer lending to grow?
According to the Financial Times, Vietnam’s consumer lending sector is still relatively “young” while this form of lending has become popular in many Asian countries. Vietnam is a country with great potential to develop this field with young population (population size reaches over 92 million people with 70 percent of the population are between 15-64) and the economy is developing rapidly (gross domestic productGDP growth rate is over 6 percent per year).
Statistics of the State Bank of Vietnam (SBV) show that in the past five years, consumer credit has increased nearly five times. Specifically, at the end of 2012, the total outstanding consumer loans were about 230 trillion dong, accounting for 8 percent of the total credit balance of the economy. By the end of 2017, consumer credit balance reached about 1.1 quadrillion dong (4.8 times higher than 2012), accounting for about 18 percent of the total outstanding loans of the economy.
As of 31st December 2018, the total assets of finance companies and finance leasing companies reached 167.822 trillion dong, up 18.27 percent compared to the end of last year; chartered capital increased by 17.2 percent and equity increased by over 39.4 percent.
Consumer lending market has the participation of domestic and foreign banks and nearly 20 financial companies. Loans with large amounts are provided by the bank, while loans with lower amount are provided by financial companies.
According to Stoxplus statistics, at the end of 2017, VPBank Finance Company (FE Credit) led the market with nearly 50 percent market share of consumer finance companies, followed by Home Finance Vietnam Ltd (Home Credit) with 17 percent and HDSaison Finance Company Limited (HDSaison) with 13 percent. The main customers of consumer finance companies are low-to-middle income people who are not financially capable of accessing loans from commercial banks.
In recent years, thanks to the high net interest margin (NIM), financial companies have contributed significant profits to the parent banks. As in the case of Vietnam Prosperity Joint Stock Commercial Bank (VPBank) in 2018, FE Credit contributed 45 percent of profit to the parent bank.
Specifically, the pre-tax profit for 2018 of the consolidated bank was recorded at 9.199 trillion dong (up 13.2 percent compared to the same period last year, reaching 85 percent of the yearly plan), in which the profit before tax of FE Credit reached 4.118 trillion dong (down 1.95 percent year-on-year, accounting for 45 percent of the total consolidated profit). After the first three quarters of the year with slow growth, only in the fourth quarter of 2016, FE Credit has expanded lending to more than 6.5 trillion dong, helping FE Credit’s credit balance reach about 53.27 trillion dong, up 18.9 percent for whole year 2018higher than the 17.35 percent overall growth of VPBank.
In addition to VPBank, another bank, Hochiminh City Development Joint Stock Commercial Bank (HDBank), also got profit contribution from consumer finance company HDSaison. In the first nine months of 2018, HDBank achieved 2.263 trillion dong profit before tax, of which HDSaison Finance Company contributed about 480 billion dong, equivalent to 21 percent.
Although there is still a lot of potential for growth, the operation of consumer finance companies in Vietnam is increasingly challenging.
Regarding subjective factors, all the challenges are from management and handling of bad debts (with the most noticeable issue of personnel) after the hot growth period in recent years.
Regarding objective factors, competition is increasingly fierce with many big names joining the market. At the beginning of August 2018, finance company of SaigonHanoi Commercial Bank, SHB Finance, officially launched a comprehensive service package, providing unsecured loan package to meet the demands of consumers.
In June 2018, Tin Viet Finance Joint Stock Company (VietCredit), formerly known as Cement Joint Stock Company (CFC), was also established with a chartered capital of 604.9 billion dong. Previously, only in the first two months of 2018, the market welcomed the entry of four consumer finance companies including EVN Finance, Lotte Vietnam Finance Limited Company (Lotte Finance), Post Finance Company Limited (PT Finance) and Prudential Vietnam Finance Company Limited (Prudential Finance).
At the end of 2017, Military Commercial Joint Stock Bank (MBBank) also launched MB Shinsei Finance Company Limited (Mcredit brand), and transferred 49 percent of Mcredit’s equity to MB Shinsei Finance Company Limited, a subsidiary of Japanese bank, Shinsei Bank.
In addition to the above-mentioned market challenges, financial companies’ activities have faced many negative reactions from consumers recently. In particular, the emerging issues include consumer complaining about the way financial companies collect debt by threatening, causing pressures affecting reputation and psychology of borrowers; providing inaccurate, incomplete and confusing information, etc.
In response to the above situation, at the end of last year, SBV had to take action and issue a document to request the State Bank branches in provinces and cities to carry out a number of measures to rectify the operation of the financial companies, ensuring compliance with the provisions of laws, ensuring the legal rights of customers. In addition, regular supervision and regular monitoring of compliance with internal regulations and legal provisions on consumer lending activities have also been strengthened.
In summary, although there is still plenty of room for growth, the activities of consumer finance companies are gradually revealing weaknesses and risks. This requires financial companies as well as regulators to take corrective measures as well as review strategies to aim for sustainable development in the future.
