The recent report by Viet Capital Securities Company (VCSC) revealed that the credit growth of Home credit is nearly double that of FE Credit. This development shows that although FE Credit dominates up to 50 percent of market share, the company is unlikely to have peace of mind as its existing rivals are following closely and the pressure from new entrants which are rushing to penetrating the market. Two main obstacles for consumer finance companies who joined the market later are capital mobilisation and distribution channel. However, the advantage in mobilising capital between the foregoers and rookies is not significantly different.
Whether they are foregoers like FE Credit or HDSaison or rookies like SHB FC and MCredit, these finance companies still have to mobilise capital through certificates of deposits, bonds and loan contracts with banks (interest rates in accordance with general regulations), etc.; and are not allowed to mobilise deposits from organisations and people (this regulation aims to limit interest rate risk, liquidity risk and bad debts).
For foreign finance companies, although there is no support from the parent bank like most local finance companies, they have strong backing from the overseas parent companies with huge financial capacity by directly injecting capital and supporting those companies to attract capital from foreign partners.
For example, Home Credit has received support from its parent company Home Credit B.V which presents in consumer finance markets all over the world (China, Cheque, Russia, Vietnam, India, Kazakhstan, Slovakia, the Philippines, and Indonesia). Prudential Finance and Techcom Finance have been supported by two financial giants from South Korea Shinhan and Lotte.
Certainly, there are differences. Firstly, large companies with more market share and high profits will be easier to borrow loans. Secondly, for large enough companies (such as FE Credit and HDSaison), it is possible to conduct Initial Public Offering, thereby mobilising large amount of capital from both institutional and individual investors, while increasing equity and enjoying higher borrowing limit thanks to the improved capital adequacy ratio. The distribution channel obstacle, despite being large, is not very much difficult for the new finance credit companies.
The current strategy of consumer finance companies is still growing in width via expanding distribution channels, accessing untapped potential customers.
Statistics from the Credit Information centre (CIC), new finance companies have only exploited 18 million out of the 38 million individual records. That partly explains in a straightforward ay why the current top priority of finance companies is expanding. At the stage when companies compete in width, the opportunities for new entrants remain abundant as the room for growth is large with high number of untapped customers. This shows that the market share will see a lot of major changes and regular swaps of position in the future.
Another notable point which may affect the future of consumer finance situation is the issue of customer quality. Currently, the quality of customers is not ensured as finance companies race to develop in width. The case when customers think that they are “cheated” is fairly popular, which means that they are unlikely to return to the finance company where they borrowed. This is a risk for finance companies having poor customer return and is the chance for their rivals. Finance companies should develop cautiously in each step. They may achieve slow immediate growth but the foundation will be sustainable, creating the prerequisite to strongly rise in the future when the market gradually comes to saturation.
