Seven months after commenting on the draft amendment to Circular 43/2016/NHNN regulating consumer lending activities at financial companies, the State Bank of Vietnam (SBV) officially issued Circular 18/2019/TT-NHNN takes effect from January 1, 2020.
In terms of the proportion of direct disbursements (mostly in cash loans) to the total outstanding loans, the changes in the previous draft aimed to limit the immediate disbursement only to existing customers and require to have a good credit history on the National Credit Information centre of Vietnam (CIC) database.
However, the official circular had removed the limit on direct disbursement for existing customers, while keeping the regulation of having a good credit history based on the database of CIC.
Specifically, financial companies could only disburse directly to customers who did not have bad debts according to the credit relationship search report at CIC.
Most notably, SBV had set out a detailed roadmap to bring the rate of total consumer loan direct disbursement to total consumer credit balance to 30%.
Accordingly, this maximum rate would be 70 percent in 2021. In 2022, the maximum rate would be 60%, 50 percent in 2023 and about 30 percent from January 1, 2024
Thus, financial companies had more than four years to bring the rate of direct disbursement in total balance to 30%.
In a quick review of the new circular, Viet Capital Securities Corporation (VCSC) emphasized that the circular defined direct disbursement including cash and non-cash payment transactions (credit cards). In March 2019, VPBank Finance Company Limited (FE Credit) differentiated its portfolio of cash and credit cards. However, Circular 18 posed the possibility that a portion of FE Credit’s credit card portfolio would be included in the limit.
At present, outstanding loans for cash and credit cards account for 83 percent of FE Credit’s total balance.
From the perspective of VietnamFinance, this ratio showed that FE Credit would be under considerable pressure from the new regulations. However, the extended application roadmap allows FE Credit’s management to adjust its business strategy and not create a shock.
In fact, cash lending was the most fertile consumer lending segment, which had the most massive geographical footprint but also carried high risks, especially the risks stemming from unspecified use.
Not only FE Credit, other financial companies, especially new entrants, had a strong focus on cash lending because the market share of this segment was still significant. This concentration can resonate risks, creating a high risk for the credit system. That was the reason why regulators were forced to adjust this loan flow.
The new regulation, on the one hand, reduced the profit margins of financial companies due to the very high interest rate of cash loans, while also limited the percentage of market share expansion of financial companies, especially the small one that had just entered the market shortly.
However, there were still a few companies that kept their proportion of cash loans at a much lower level than the common one, typically HDSaison Finance Company Limited (HDSaison). By the end of September 2019, this proportion of HDSaison was only 33 percent (declined from 35 percent at the beginning of the year), showing that this financial company was not much affected by the newly issued circular.
In the first half of this year, FE Credit continued to dominate the consumer finance market with about 50 percent market share. In particular, this ‘king’ continued to strengthen its position in the market by increasing more than two percent of market share in the first half.
The next two positions belong to Home Credit Vietnam Finance Company Limited and HDSaison, both recorded a decrease in market share in the first half of the year, although the reduction of each company was only over one percentage point.
Fourth place went to MB Shinsei Finance Limited Liability Company (Mcredit), followed by Shinhan Vietnam Finance Company Limited, Toyota Financial Servies Vietnam Company Limited and Mirae Asset Finance Company Limited.
New entrants into the market, such as Saigon Hanoi Commercial Joint Stock Bank Finance (SHB Finance), VietCredit Finance Joint Stock Company (VietCredit), Easy Credit Vietnam, Lotte Finance Vietnam Company Limited, were also very active in expanding their market share. In particular, SHB Finance recorded an impressive increase in market share with 1.6 percent compared to 0.5 percent in 2018; VietCredit increased from 0.1 percent to 0.7%.
