The impact of the Covid-19 pandemic, as well as the new policies and regulations are expected to slow down the growth of the consumer finance market in 2020, but it is also an opportunity for financial companies to restructure their activities, including the sale of capital to foreign partners.
A controversial problem for Vietnam’s consumer finance market is high interest rates. Answering the question of why consumer lending rates in Vietnam are higher than many countries in the world, Ho Minh Tam, general director of VietCredit analysed, the lending rates in Vietnam was quite high, but overall, this comparison was not appropriate.
Tam said that the mobilising interest rates of financial companies in other countries were lower than Vietnam, only about 3-5 percent per year, while Vietnam’s interest rates were double this number. Moreover, the structure costs of loan interest of Vietnamese consumer finance companies were also different. “Besides, the capital capacity of consumer finance companies in regional countries is also greater than Vietnam, and domestic financial companies do not always have access to cheap capital from abroad because the credit rating is still low,” Tam emphasized.
According to Tam, the funds or financial institutions in the world mainly take into consideration the ratings when lending. Meanwhile, few Vietnamese financial companies have been rated by A&P or Moody’s at A-, not to mention A+. In fact, present in Vietnam since 2008, but Moody’s started to rate Home Credit for the first time in 2018. Similarly, its predecessor was Consumer Credit Division at Vietnam Prosperity Joint-Stock Commercial Bank (VPBank) in 2010, but in February 2015, it transformed the consumer credit activity into a new independent legal entity, under the brand name of FE Credit and by 2018, FE Credit was rated.
Regarding SHB Financial Company (SHBFC), licensed in late 2016 and officially received a business registration certificate in early 2017, and by 2019, it was rate by Moody’s. All three financial companies rated by Moody’s at that time were B level. However, this weekend, the credit rating agency reported a review of the three companies’ credit rating because the rapid spread of Covid-19 reduced the global economic outlook.
In an interview with the Securities Investment Review, both FE Credit and Home Credit leaders acknowledged that the capital mobilisation in the past few years has been very positive due to the quality of operation of good financial companies, but it has turn to be tough since 2019-end. In order to ensure the capital sources, the financial companies will mobilise domestic capital in the form of certificates of deposits from institutions for the following reasons: Firstly, financial companies are not allowed to mobilise deposits from residents; secondly, inter-bank loan only have terms of up to one year; thirdly, financial companies still have to comply with the liquidity indicators of the State Bank of Vietnam (SBV) on the ratio of using short-term capital for medium and long-term loans.
“Raising capital through the form of deposit certificates is not easy. Therefore, one of the main reasons for the high lending interest rates of financial companies is the high input capital. This is challenging the patience of the leaders of financial companies, not just customers,” said the senior manager of a financial company.
Selling capital to foreign investors: Need more time
Evaluating Vietnam’s consumer finance market, Shibata Kenichi, Senior manager of Hitachi Asia (Vietnam) Co., Ltd said that this was a strong growth market, an average of 30 percent per year, positive promise in consumer lending. “The Japanese consumer loan market 30 years ago was similar to Vietnam today with huge consumer lending demand as the data grew strongly every year,” said Shibata Kenichi.
Sharing with the Securities Investment Review, leaders of consumer finance companies all said that Vietnam’s consumer finance market in 2020 would continue to grow, but slow down compared to previous years due to the impact of disease, as well as new policies. Regarding the policy element, many people said that after the boom, the promulgation of policies to ensure financial companies to have safe and sustainable operations was more necessary, avoiding the overheating, beyond the management capabilities of both regulatory agencies and businesses.
On the other hand, the slower pace of market growth is thought to be an opportunity for consumer finance companies to actively restructure operations and each company has different choices.
VietCredit leaders said that the Company would focus on investing in technology to solve the problem of labour productivity, optimise operating costs, thereby aiming to become a compactly organised company, effective operation, good risk management, as well as improving customer experience. “With all this combined, the company’s output costs will be cheaper and we have the opportunity to reduce interest rates for customers, while improving competitiveness in the market,” Tam said.
At SHBFC, selling capital to major foreign strategic partners is considered a strategic step, with the expectation that will help SHBFC take advantage of the deployment experience, management capacity, modern and specialised distribution network. In particular, the sale of capital also ensures a significant source of capital surplus for SHBFC, as well as SHB’s parent bank.
“After two years of official operation, SHBFC recorded impressive results: Total assets reached nearly 3.3 trillion dong by the end of 2019, an increase of 2.75 times compared to 2018; in which outstanding loans were 2.7 trillion dong, 3.8 times higher; mobilised 1.8 trillion dong of valuable papers from 14 professional investment organisations, which are fund management companies and credit institutions; the number of new customers reached over 460,000 after nearly 20 months of comprehensive sales deployment; and profit achieved nearly 107 billion dong. This helps SHBFC confidently choose suitable foreign investors”, a senior leader of SHBFC said.
At the same time, a senior FE Credit executive said: “Selling capital to foreign investors with the aim of raising capital is the point that FE Credit has considered, but has not been implemented yet.”
According to analysts, the sale of capital to foreign investors of financial companies takes more time. Because, the opinion of many businesses is that strategic investors need to participate in executive management, technology and product contributions.
