Facing the heat of Vietnam’s consumer finance market, many banks will soon establish or acquire finance companies to boost consumer lending.
Although the contribution to the parent bank of FE Credit is said to have decreased compared to the previous time, reaching only 36 percent, the company in 2018 was still a subsidiary with the largest contribution to the total pre-tax profit of 9.2 trillion dong of Vietnam Prosperity Commercial Joint Stock Bank (VPBank). The Return on Assets (ROA) and Return on Equity (ROE) of FE Credit reached respectively 2.5 percent and 22.9 percent. The company’s Net Interest Margin (NIM) was nine percent.
Meanwhile, closing the year 2018, HD Saison finance company recorded a pre-tax profit of 900 billion dong, up by 73 percent compared to 2017, and contributed over 25 percent to the more than four trillion dong consolidated profit of the parent bank HCM City Development Commercial Joint Stock Bank (HDBank).
HCM City Securities Joint Stock Bank (HSC) forecasted that HDBank’s consolidated pre-tax profit in 2019 will grow by 27.3 percent to 5.098 trillion dong, bringing the ROA to 23 percent. In particular, the NIM will continue to increase thanks to the perfect combination between retail banking and consumer finance strategies.
In-depth analysis on HDBank’s customer loan portfolio of HSC showed that the parent bank recorded a credit growth of 18.3 percent, within the limit allowed by the State Bank of Vietnam (SBV). Meanwhile, HD Saison developed lending by 12.7 percent. HSC assessed that the prospect of HDBank’s profit in 2019 is very positive with a growth of 27.3 percent, reaching 5.098 trillion dong.
Sharing the pie
With the huge growth potential of consumer finance credit market, three more finance companies joined the race for consumer finance market share, including Viet Credit (transformed from Cement Finance Company), SHB Finance and Easy Credit.
In the coming time, there will be the participation of more finance companies owned by Orient Commercial Joint Stock Bank (OCB), Asia Commercial Joint Stock Bank (ACB), etc. The joint of new players proves the great potential of the Vietnam’s consumer finance sector, but the competition will thus become more intense in the near future.
Since Consumer finance is a potential field in the economic development of Vietnam, this market attracts not only domestic financial institutions but also foreign investors. For example, Lotte Group (South Korea) acquired Techcom Finance for 1.7 trillion dong.
Previously, Shinsei Bank (Japan) in September 2017 acquired 49 percent stake of the finance company of Military Commercial Joint Stock Bank (MB). Shinhan Bank expanded its retail segment by acquiring the retail section of ANZ in Vietnam. At the same time, Shinhan Bank, via its subsidiary Shinhan Card, spent 151 million US dollars (equivalent to about 3.4 trillion dong) to acquire Prudential Finance.
Compared to foreign finance companies, finance companies owned by domestic banks still dominate the market, such as FE Credit of VPBank, HD Saison of HDBank, because these companies are knowledgeable about the culture of Vietnamese’s consumer in order to provide suitable products.
Dmitry Mosolov, general director of Home Credit Vietnam said that Vietnam is currently having the second highest proportion of consumer spending in Gross Domestic Product (GDP) in the Asean. In particular, the number of people in working age accounts for up to 70 percent of the population. However, the proportion of people with credit transactions recorded at banks and finance companies remains modest. Thus, the potential to exploit consumer finance market is very huge.
According to forecast of financial experts, since Vietnam’s population will continue to rise and reach 100 million people by 2025, this is a very good opportunity for consumer finance channel to accelerate and prosper.
Nevertheless, according to banking expert Dr Nguyen Tri Hieu, the draft of Circular 43/2016/TT-NHNN on the operation of finance companies (for which the SBV is widely taking comments) will tighten cash loans of finance companies at no more than 30 percent of the oustanding loans. This will cause many difficulties for the operation of finance companies.
