More firms competing for shares in Vietnamese consumer lending market

Buoyed by increasing interest in taking up loans for purchases among the Vietnamese population, recent years saw an impressive growth of personal finance companies in Vietnam, with FE Credit, Viet Credit, SHB Finance, and Easy Credit, among others, joining the market. The market is expected to thrive with some newcomers backed by giant Oriented Commercial Joint Stock Bank (OCB) and Asian Commercial Bank (ACB).

It is interesting that many of the current businesses are an extension of the retail banking business of some banks. Their business network, IT, and risk control system, as well as strong capital foundations, bear the marks of commercial banks.

For example, FE Credit, a consumer lending company of VPBank and one of the largest players in the industry, announced that its revenue made up 30 per cent of VND9.2 trillion ($400 million) of VPBank’s overall pre-tax profit. With its return on assets (ROA) and return on equity (ROE) of 2.5 and 22.9 per cent, respectively, the firm is VPBank’s frontline penetrating the consumer credit market.

Meanwhile, HD Saison generated VND900 billion ($39.1 million) in profit, which is 73 per cent higher than in 2017. The firm’s revenue also accounted for 25 per cent of HDBank’s pre-tax profit last year.

With activism rising across the country, the number of companies in the field is no longer limited to a few local players. New-age financial services have a huge opportunity to make credit accessible to individuals, boosting the harsh competition among consumer lending companies. The consumer finance sector is forecasted to witness double-digit growth in the next few years, luring both local and foreign players. The case of Lotte from South Korea wholly acquiring Techcom Finance of Vietnam can epitomise these trends perfectly.

Besides wholly acquiring deals, some local finance companies have found overseas partners to strengthen their operations, such as the marriage between Shinhan Bank and ANZ Vietnam’s retail banking arm, or Shinsei Bank (Japan) acquiring 49 per cent of MCredit from MBBank.

It is noted that local consumer credit firms like FE Credit and HD Saison still outweigh international rivals in profit thanks to their better understanding of Vietnamese customers. These local companies are not only backed up by Vietnamese banks as shareholders but also innovate to optimise operations based on Vietnamese consumers’ characteristics.

However, overseas firms hold advantages of their own in their global and international network and ability to offer a wider suite of products to their customers.

Vietnam’s population is expected to reach 100 million in 2025, according to a recent forecast issued by the Institute of Public Policy and Management. Hence, the market potential is still very large as Vietnam’s GDP is the second highest in the ASEAN, while 70 per cent of the population is of working age, said Dmitry Mosolov, general director of Home Credit Vietnam.

This means a big hitherto untapped white space of consumer lending could open up many great potentials for finance firms. However, some hidden dangers have gradually emerged during the rapid development and the corresponding restrictive policies should be introduced.

In a bid to mitigate risk and fraud, Vietnam is tightening regulations on the consumer finance market by issuing Circular No.43/2016/TT-NHNN limiting the maximum amount of cash loan to 30 per cent of total loans. “It could pose many challenges to both financial firms and their customers,” finance and banking expert Nguyen Tri Hieu stated.

For instance, unlicensed companies, which often receive less supervision and have diversified business models, will face great uncertainty.