The overall consumer credit market slowdown in 2018 could have led FE Credit to achieve slower growth but the consumer finance company expects to conclude the year with upbeat results, whilst preparing for a gentler pace (in percentage terms), but more sustainable growth in the years ahead.
A maturing market
Whilst its 2018 annual report has not yet been officially released, the largest consumer finance firm in terms of market share in Vietnam has revealed a number of indicators showing its solid performance for the year. FE Credit has been able to maintain its thrust in credit disbursals over the course of the year on the same pace recorded in prior years.
According to Kalidas Ghose, FE Credit vice Chair and CEO, the company disbursed an average of VND4.5 trillion (US$195million) in credit per month till September. The figure then grew by double digit per month during the last quarter, with the month of December seeing a record high of 50 per cent hike in credit disbursals.
“Such an increase in disbursals of more than 50 per cent in three months is only but a rare occurrence in a volume driven retail business consisting of small ticket loans like consumer finance,” commented the CEO in a recent interview in HCM City in early January.
“FE Credit has actually consolidated its position and it’s been able to not only build upon its success [in previous years] but also perform relatively better than the rest of the players in the industry, especially the leading players who have been our key competitors in the past.”
In the first nine months through September, FE Credit scored an almost 30 per cent increase in accounts and a 23 per cent rise in new customers year-on-year (YoY). During the first 9 months, its revenue reportedly advanced by 15 per cent on-year while expenses were down by 18.5 per cent compared to the set target. Risk cost, however, added up to VND5.5 trillion (US$239 million), up by VND1.1 trillion (US$48 million) and VND900 billion (US$39 million) on top of the original target of VND4.4 trillion (US$191 million) planned for 2018 and the 2017′s risk cost, respectively.
StoxPlus stated in its Vietnam Consumer Finance Report 2018 that by the first half of 2018, consumer loan balance grew by 6 per cent year-to-date to reach some $51 billion from the $48 billion of 2017. While the growth rate is observably slower than the 2013-2017 period, with the peak growth of some 150 per cent in 2015, there is still space for consumer finance market growth, with perhaps slower but steadier pace over the long term, thanks to a large proportion of the population that is due to join the workforce and a booming economy where income levels are on the rise.
In explaining FE Credit’s softer momentum in the first half, Ghose said that due to an inopportune drop in its collection efficiency, the firm had gone into slower growth, despite witnessing a sales burst at the beginning of the year.
“During the first half of 2018, FE Credit has seen certain effects of competition, in the form of losing some key staff in the front line function, especially in the collection side. But FE Credit was quickly able to retrieve the situation and build capacity rapidly with a long-term, sustainable view in mind. The effect of such capacity build-out was seen very quickly within 2-3 months, by which time the portfolio performance came back to normal,” said the CEO.
“We had to rationalise the volumes from certain channels that were contributing to high delinquency especially in the personal loan portfolio, which is the key revenue earner for the business. This led to a shortfall in our ending net receivables (ENR) that ultimately led to a shortfall in revenue [against plan]which affected the profit even though we were able to reduce our expenses by 20 per cent, while keeping our risk costs largely flat.”
The industry has also seen a stagnation of demand in general this year, he added, and all players have accordingly faced a challenge in terms of growth, which can be evident in their published financial results.
Taking Czech-backed Home Credit Vietnam for instance, its parent company, Home Credit Group, posted its Q3 2018 results showing the Vietnamese unit saw a slight fall in net loans from euro 624 million (US$715 million) in Q2 to euro 600 million(US$688 million) in Q3. Its net income, likewise, dropped from euro 12 million (US$14 million) in Q2 to euro 10 million (US$11 million) in Q3, a decrease in net income compared to 2017. The group’s non-performing loans (NPL) was at 8.9 per cent for the period.
For HD Saison, a joint venture between Japan’s Credit Saison and HD Bank Vietnam, the consumer credit company was known to contribute approximately JPY 600 million (US$5.5 million) to its parent’s profit for the first half of the fiscal year 2018. The group as a whole reported a net income of JPY 11.7 billion (US$108 million), a fall of 48 per cent year-on-year, according to its financial result announcement for the Q2 of fiscal year 2018.
The demand stagnation, meanwhile, was firmly addressed with FE Credit’s own strengths to help turn the situation around in the second half of 2018. With its tremendous product knowledge, deep domain expertise, a large customer base and necessary analytics with data platform to mine customers’ needs or to identify opportunities, together with a very large distribution network that is capable of retailing the firm’s newly-designed products to a large base of customers, the firm has achieved significant results for the whole year. Full year results for 2018 are expected to be up in the 20-30 per cent range on-year, driven by strong growth in accounts and ENR balances and a NPL ratio that has been kept steadily at 6 per cent, despite the low credit disbursement in the first half 2018.
“In 2018, FE Credit’s ability to grow was tested and found to be not only adequate but far superior to the competition in the market. FE Credit was able to mine its own existing database and significantly increase credit disbursals to existing customers with good performance track record, which has given us solid ENR growth and utilised the full growth quota [allowed by SBV] for 2018,” said Ghose during the interview.
Sustainable future growth
The consumer finance sector in Vietnam has witnessed an upswing since 2014, yet aggressive growth would not last forever for all players in the game. As the market leader, FE Credit was able to well predict the market slowdown in 2018 and now gets prepared for the time ahead.
Ghose said that he has personally witnessed a very aggressive growth of consumer finance in recent years, thanks to a combination of a fast growing economy at around 7 per cent a year and a large young population base whose income has been rising rapidly in recent years.
“Having said that, we do understand that over a period of time when the penetration increases, the growth rate of the industry would obviously have to come down to more moderate and stable levels,” noted Ghose.
An 18-20 per-cent annual growth rate for the next five years or so, as Ghose stressed, is more sensible and achievable, even as the company increases its exposure on its existing customers and gets a reasonable share of new customers who are coming into the market, given the rising income levels and capabilities to serve customers efficiently.
“The target that we are setting for 2019 of 18-20 per cent is very achievable. We are confident of achieving it, because with our large customer base, we have demonstrated our capability to deepen our relationship with them, especially in recent times, by converting a large number of them to take up appropriately sized loans that they deserve, and we will continue to do so in the near future,” said the CEO.
This very strategy, as he went on to say, has not been employed equally well by FE Credit’s competitors, and this has created a competitive edge for the company to take advantage of the market and adjust itself to the changing need of the customers.
