For the first time in a decade, Vietnam consumer finance market experienced a single-digit growth rate (9.2% YoY in the first half of 2020), following aggressive credit growth over the past few year. This is attributed to the dual challenge posed by COVID-19 pandemic and tightening regulations on cash loans disbursement prescribed at Circular 18/2019. However, despite the modest growth rate, Vietnam consumer finance maintained a contribution of over 20% of the country loan book.
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Besides competing against banks in the overlapped customer segment, FinCos also face rising competition from alternative lenders. FinCos’ target customers are the newly banked and unbanked, under-banked - who do not have full access to traditional financial services, thus, technology-enabled business models with less strict lending standard offer a more effective way to serve this segment, putting pressure on incumbent players.
Despite the transition roadmap as per Circular 18, cash loans became slightly more prevalent, accounting for over 67% of the total CF loan portfolio in 1H2020. FinCos are therefore coming up with new forms of indirect loans, diversifying their indirect loan portfolio, together with actively promoting credit cards
Almost all FinCos’ loan book scaled down as the impact of the pandemic spread, making FinCos become more cautious in lending due to the concern over rising NPL amidst weakening individual income. Meanwhile, young FinCos (others) continued to seize 1% of market share from leading players in 1H2020.
SBV continuously issued policies to guide credit institutions including FinCos to support customers affected by the COVID-19 pandemic. Most recently in a draft circular, loans disbursed between 23 Jan and 24 Apr are eligible for maintaining in the standard debt group. However, this temporary support for cash-strapped borrowers might increase future risk as reported NPLs did not fully reflected the asset quality picture of FinCos.
Average NIM of the sector followed the downward trend, reflecting The first half of 2020 saw a greater and more immediate impact of the COVID-19 on FinCos’ earning quality. Nonetheless, some companies such as HD Saison, Shinhan Finance and Lotte Finance managed to increase their NIM thanks to low-cost capital mobilized from parent companies.
Overall NPL slightly increased as FinCos became more cautious in lending due to the concern over rising NPL. However, reported NPL figures did not fully reflect the asset quality picture of FinCos due to the impact of SBV’s supportive policies at Circular o1 that allows credit institutions including FinCos to delay categorizing overdue debt to NPLs. Given slow credit growth and rising potential NPLs, FinCos are expected to accelerate their provisioning and switched to focus more on existing customers with validated credit history rather than new customers to mitigate credit risk.
Three major driving forces (Regulatory changes, Consumer lifestyle, and COVID-19 pandemic) will reshape the Vietnam CF market in coming years with the following trends:
- Credit cards emerged as a new growth driver of CF market since the other two POS loans have showed signs of saturation. New forms of installment loans are also proliferating in order to satisfy customers’ demand.
- FinCos are now focusing on enhancing customer experience through the digitalization of end-to-end customer journey
- P2P lending and other app-lending platforms have recently emerged, involving a high degree of risk and significant impacts on the performance of mainstream credit providers.
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