The competition between banks and finance companies in consumer lending is forecasted to continue increasing. Therefore, finance companies are recommended to focus on the untapped objects such as low-income people, people living in remote areas, etc.
Talking to reporter of Dau tu Chung khoan, Sebastian Eckardt, Chief Economist of the World Bank in Vietnam said that “In addition to the efforts of the State Bank of Vietnam (SBV) in curbing credit growth, the agency is currently taking measures to manage the capital inflows into real estate and consumer finance areas.
In fact, consumer credit has a low proportion but very rapid growth rate, and Vietnam needs to continue managing risks to avoid excessive borrowing in the household sector.”
A study by FiinGroup showed that the consumer credit increased at an average of 66.3 percent in the period of 2015 2017, much higher than the 20 percent recorded in 2013 2014. The growth in 2018 cooled down to 30.4 percent, but consumer finance has played an increasingly important role as the proportion of consumer credit in total credit to the economy increased from 12.3 percent in 2016, to 17 percent in 2017, and 19.7 percent in 2018.
However, financial experts said that there should be a clarity in the consumer credit between banks and finance companies, because the issue here is that a very big gap exists in the market share in consumer finance between these two groups.
Specifically, according to statistics of FiinGroup, in 2018, banks accounted for 92.6 percent, finance companies accounted for 7.4 percent, and the market share of finance companies tended to decline (these rates were respectively 91.6 percent and 8.4 percent in 2017, and 85.4 percent and 14.6 percent in 2014).
According to FiinGroup, although the products have many things in common, most banks and non-bank financial institutions are not in the same segment of targeted customers. Normally, banks focus on financial market with higher-income customers.
In the period of 2014 2015, consumer finance companies such as HANDICO Finance Joint Stock Company, Cement Finance Joint Stock Company, EVN Finance Joint Stock Company, etc. focused on financing distributors and partners in the main value chain such as companies in cement, construction, electricity sectors, etc.
From 2015, after nine banks were declared weak and the banking sector started the restructuring, consumer finance and retail banking have become targets for banks with positive growth potential.
After PPF Finance Vietnam (Home Credit) and VPBank Consumer Finance Company (used to be a division of Vietnam Prosperity Commercial Joint Stock Bank (VPBank)’s retail banking which provided consumer finance products under the name of FE Credit. VPBank later acquired Vietnam Coal and Mineral Finance Company Limited and changed its name to VP Finance Company with FE Credit brand name) were established, the consumer finance market started to boom and attracted banks with retail strategy such as HCM City Development Commercial Joint Stock Bank (HDBank), Military Commercial Joint Stock Bank (MB) and recently Saigon Hanoi Commercial Joint Stock Bank (SHB). These banks have their own consumer finance companies.
“When credit institutions focus on meeting the needs of buying/repairing houses, purchasing electronics and vehicles, which are large and easily accessible segments, the level of competition between banks and finance companies becomes increasingly fierce,” said Dr Nguyen Tri Hieu, an economic expert.
Viet Dragon Securities Company forecasted that the consumer finance market will maintain a high growth rate, making Vietnam an attractive retail destination.
According to Euromonitors, the average disposable income per capita of Vietnam was estimated to reach above 40 million dong (1,773 US dollars) in 2018 and is expected to increase by an average of 5.9 percent per annum each year from 2019 to 2030, leading to the corresponding increase of the consumer spending. The middle-income group of people, who are the foundation of consumption, is also increasing rapidly as it is forecasted that in 2030, there will be 49 percent of households having annual disposable income from 5,000 to 15,000 US dollars, higher than the 33.8 percent recorded in 2018.
“To exploit the upcoming trend of consumer credit, finance companies need to focus on segments that have not yet had access to financial services such as low-income people, customers in remote areas, etc., on the basis of developing, expanding and coordinating with telecommunications companies and Intech’s in reaching the segments.
