Foreign firms push consumer lending

Home Credit Finance Vietnam, a subsidiary of Czech-based Home Credit Group, has been in Vietnam since 2009, employing 10,000 staff members and operating through 6,900 points of sale in 63 cities and provinces across the country. The firm states on its website that it has served some five million ‘happy’ customers so far.

Targeting durable goods buyers, Home Credit offers fast loans, revolving credit lines, and credit cards to its customers. They are also expanding their retail deposit services for select customers.

According to Nguyen Quynh Lan, managing director of the Business Information unit at data and business information provider StoxPlus, the consumer finance (CF) era in Vietnam in fact began in 2007 with the participation of the very first 100 per cent foreign-owned CF company called Prudential Vietnam Finance, then followed suit by Home Credit (formerly PPF Vietnam) and Société Générale Viet Finance (SGVF). “The sector has been managed by these companies from the very beginning.”   

Despite the large presence of foreign CF firms, the largest company, in terms of market segment, in the CF space is the Vietnamese firm VPBank Finance Company (FE Credit), a consumer lending subsidiary under VPBank. “Even though it’s a local firm, VPBank Finance has been adopting new technologies very quickly to expand its loan portfolio and maintain its leading market position,” Lan said.

A slice of the cake for all

In its report titled Vietnam “Consumer Finance Market 2017”, StoxPlus noted that the country’s consumer lending market had flourished in 2016, with the outstanding loan balance adding up to $26.55 billion for the year, accounting for 11.4 per cent of Vietnam’s total loan value.

“With current low contribution to Vietnam’s GDP (at 13 per cent), compared to regional countries, the market has great room for development in the future.”

In its earlier reports, StoxPlus also made a remark on the country’s CF market: “Following a robust surge in 2014, the consumer finance market in Vietnam has witnessed the fastest growth in 2015 with growth rate of 44.1 per cent compared to 18 per cent in 2014. The outstanding loan balance soared from $10.5 billion in December 2014 to $15.12 billion at the end of 2015.

“Among CF products, housing loans and home improvement contributed the majority of consumer finance loans over the period. While home appliances and furniture experienced gains, vehicle loans gradually lost their market share,” the report stated.

Home Credit and Prudential Finance are not the only firms that have chosen Vietnam as a destination for their operations, as banks in Vietnam and other foreign investors have also seen the potential of the consumer lending segment in the country.

According to Katsumi Mizuno, director of Credit Saison’s International Markets, there is still potential for credit growth in individual consumption and card services in Vietnam, thanks to the country’s young population and the meager market penetration of these products.

The rise of local

A few years back, there was a raft of finance companies taken over by local banks, in a bid to further their consumer credit activities and take advantage of the blooming consumer market in Vietnam. During that time, Maritime Bank acquired the Vietnam Textile and Garment Finance JSC (TFC), changing the entity into Maritime Bank Finance Co., Ltd. (MSBFC), Techcombank bought and transformed Vietnam Chemical Finance JSC (VCFC) into a limited company, VBBank took over Vietnam National Coal-Mineral Finance Company (CMF), Military Bank (MB) merged with Song Da Finance Company (SDFC), and Saigon-Hanoi Bank (SHB) acquired Vinaconex-Viettel Finance Company (VVF), forming SHB Finance.

State-owned banks like BIDV and Vietinbank, or commercial banks like Sacombank or ACB, might also set up or acquire a finance company to grease the wheels of their consumer credit operations. This is important because, under regulations set forth by the central bank, only finance companies are allowed to carry out consumer credit activities and provide intensive and diversified consumer finance services.

“Local CF firms, unfortunately, did not previously have a real function of consumer lending, they chiefly offered project financing and did not have any CF products. Taking over the CF companies was simply to obtain the licence to operate in such a market,” said StoxPlus’s Lan.

“Nevertheless, banks realised afterwards that it is challenging to build up a CF module from scratch, as the CF model very much differs from banks’ retail banking models. So they ought to seek co-operation with foreign partners,” Lan told VIR.

HDBank, for instance, bought out SGVF – one of the largest foreign-owned consumer finance companies in Vietnam – in 2013, and converted it into HDFinance.

Not long after, the State Bank of Vietnam (SBV), in early 2015, allowed HDBank to transfer 49 per cent of HDFinance to Japanese-backed Credit Saison Co., Ltd., changing the finance company to HD Saison Finance.

With the capital injection from Credit Saison, by the end of 2016, the firm claimed that it had met the demands of three million customers at over 7,500 points of sale across the nation. The services provided range from motorbike and car loans to loans for electronics and furniture, as well as cash loans.

FE Credit reportedly earned some VND1 trillion ($45.45 million) in pre-tax profit in 2015 and VND2 trillion ($90.90 million) last year. The firm has also signed a $100 million contract with Switzerland-based Credit Suisse to back its finances.

FE Credit, according to StoxPlus, maintained its leading position, in terms of market share, in 2016 with 48.4 per cent, up from 44.92 per cent reported in 2015. Home Credit and HD Saison, meanwhile, secured the second and third position, with 15.77 per cent and 12.15 per cent of the market share, respectively, for the year.

FE Credit’s total outstanding loan added up to $1.4 billion, as three-fold as much as the runner up Home Credit’s.

Earlier this year, Japan’s Shinsei Bank bought 49 per cent of MCredit – the consumer finance arm of MB. MCredit is now renamed MB Shinsei Consumer Finance. Yukio Nakamura, vice chairman of Shinsei Bank, said that the deal will open up opportunities and improve the competitive edge of Shinsei in Vietnam.

MCredit will enjoy MB’s strong customer database and sales network, helping them cross-sell to the lender’s customers. At the same time, the company will also have access to Shinsei’s information systems, which can fasten and standardise the process of customer verification, loan approval, disbursement, and collection.

“It’s expected that the local-foreign co-operation model will continue in the future. We’ve worked with numerous foreign investors, and they all agree that the CF sector here is still very promising, despite its rapid growth in recent years,” said Lan. “They are interested in investing in the sector. They are, however, facing quite a number of obstacles such as regulations and new licence requirements.

“So, to get in, they will have to work with a local lender, and based on their international experience, they could likely come up with a new business model to compete with Home Credit or FE Credit.”