The Hanoitimes - More commercial banks are keen to establish consumer finance subsidiaries to seize a bigger share of a market that is high potentials with annual growth rate of over 50 percent and projected value of VND1,000 trillion (US$43.85 billion) by 2019.
At the recent annual general meeting of shareholders, the Orient Commercial Joint Stock Bank (OCB) approved the policy to either establish OCB finance company with a charter capital of VND500 billion (US$22 million) or acquire a finance company with a minimum of 70% of its charter capital in 2018.
OCB chairman Trinh Van Tuan said that the bank’s consumer credit business is expanding rapidly and so it needs an independent company to streamline the business and improve risk management.
OCB plans to open a consumer finance company in 2018.
This finance company will carry out consumer credit, financial leasing, factoring and other activities in accordance with the law.
Vietcombank is also expected to set up a consumer finance arm after selling a part of stake in its Finance Leasing Company.
Earlier, ACB also planned to establish a finance company with initial charter capital of roughly VND500 billion. The bank said that its current services have already included consumer lending, financial leasing and factoring, however, the State Bank of Vietnam’s draft circulars regulate banks would not be allowed to provide consumer lending. ACB therefore needs to prepare for the future change.
The ACB’s current Leasing Company will be merged with the new company after it is established, ACB said.
News reports had suggested that ACB wanted to acquire the Post and Telecommunication Finance Company (PTFinance), but last February SeABank bought it for VND710 billion. With the successful deal, SeABank will officially open a new consumer finance company after getting the license from the State Bank of Vietnam.
Besides the expected newcomers, other banks, which have consumer finance companies, have also planned to further boost their high profitable business arm.
At the recent annual general meeting of shareholders, VPBank general director Nguyen Duc Vinh said that the consumer credit segment was one of the bank’s two main income sources in the past five years. The bank this year plans a profit target of VND10.8 trillion (US$475.77 million), of which a half will come from its consumer finance company FE Credit.
Similar to VPBank, many other banks have started to join or are planning to develop consumer finance companies. Military Bank, for example, expects to develop Mcredit brand to become the top five consumer finance companies with a total outstanding loans of VND5.9 trillion and pre-tax profit of VND300 billion in 2018. Mcredit has piloted some appropriate financial products within a year, especially for military personnel and hopes that these products will grow fast in the coming years.
Vietnam currently has 18 consumer finance companies, of which 6 are wholly foreign-owned companies. The country’s consumer finance market reached VND600 trillion last year.
According to Rong Viet Securities (VDSC), FE Credit is the biggest lender which holds 48.4% of market share, followed by Home Credit with 15.7%, HS Saison 12.3% and Prudential Finance 8.1%. All the companies have annual two-digit growth rates, according to Momentum Work.
However, VDSC, while believing consumer credit would have positive impact on economic growth in 1-2 more years, has warned of risks.
The highest risk is that people may borrow money which go beyond their payment capability. After analyzing consumers’ behavioral trends, the company realized it had excessive optimism about future income.
The high growth rate of consumer credit will be associated with increased risk on bad debts. In its report about VP Bank, HSC Securities predicted an increase of 20.82% in provisions that FE Credit has to make against risks.