The competition in the Vietnamese burgeoning consumer finance market is stiffer as some newcomers backed by big names are ramping up plans to enter the market.
Vietnam currently has 17 consumer finance companies.
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TPBank Chairman Do Minh Phu revealed the bank is negotiating for the acquisition, expecting the deal can be completed this year after getting the approval from competent authorities.
Besides TPBank, Orient Commercial Bank (OCB), Bank for Investment and Development of Vietnam (BIDV), Asia Commercial Bank (ACB) and Saigon Thuong Tin Commercial Bank (Sacombank) are also targeting to set up a consumer finance company of their own.
The banks said that living standards of Vietnamese people are increasing, driving up local consumption demands notably. They thus need to set up their own consumer finance companies in order to specialize in consumer credit and boost the retail segment.
According to experts, both customers and banks benefit when banks establish finance companies and transfer the consumer lending segment to them. At that time, consumer who need a small loan will easily get it from banks with simpler procedures, shorter approval time and no mortgage required. Meanwhile, banks can increase their market share and expand their retail business. Notably, banks can separate their risk customer segment and develop the retail market without worrying about bad debt burden.
Not only domestic banks, foreign institutions are also stepping up plans to own finance companies in the country.
Chairman of Japan’s Aeon Financial Service Co Ltd Masaki Suzuki recently said the group plans to expand its financial services to Vietnam via the acquisition of foreign-invested or state-owned financial companies.
Earlier, Thai finance firm Srisawad Corporation was also reported to be looking to acquire ailing Finance Leasing Company I of Vietnam Bank for Agriculture and Rural Development (Agribank) at an estimated cost of VND523 billion (US$22.45 million).
Big untapped opportunities
According to Dmitry Mosolov, general director of Home Credit Vietnam, the local market potential is still very large as Vietnam’s GDP growth rate is the second highest in the ASEAN, while 70 percent of the population is in the working age. Vietnam’s population is expected to reach 100 million in 2025, a recent forecast issued by the Institute of Public Policy and Management showed.
This means a big untapped space of consumer lending could open up many great opportunities for finance firms.
Business performance of existing finance companies is also positive. A report from the Vietnamese central bank showed in the Vietnam’s banking system, finance and finance leasing companies gained the highest return on assets (ROA) and return on equity (ROE) ratios last year, with 3.02 percent and 13.83 percent, respectively, compared with 0.7 percent and 9 percent of the country’s entire banking system.
Vietnam currently has 17 consumer finance companies, whose total outstanding loans reached more than US$5 billion by the end of last year.
In fact, owning consumer finance companies is not easy for banks. According to current regulations, to be qualified as a founding shareholder of a non-banking financial institution (including consumer finance company), a firm must have a minimum equity capital of VND500 billion (US$21.46 million) and a minimum total asset of VND1 trillion (US$42.92 million) in three consecutive fiscal years before the year of application. However, the minimum total asset required for a bank to be a founding shareholder of a non-banking financial institution is up to VND100 trillion (US$4.29 billion). According to banks’ recent data, about 20 local banks are not eligible to establish financial companies.
