Vietnam's new consumer finance curbs to challenge business models: Fitch

Fitch Ratings believes larger, more established finance companies are better-placed to meet the new requirements while newer, smaller companies that concentrate on cash loans may find it harder to shift their business models.

Vietnam's new consumer finance curbs to challenge business models: Fitch

Vietnam's new regulatory limits on unsecured consumer-finance personal loans will pressure the business models of more-exposed companies over the next few years, says Fitch Ratings. 

The rules highlight regulatory efforts to temper risks from rising consumer leverage, following aggressive consumer credit growth over the past few years. However, they may also push industry competition towards other product segments as lenders seek to grow.

The State Bank of Vietnam's Circular 18, released in late 2019, caps the ratio of personal loans for a finance company to 70% of its total consumer loans from January 2021. This falls to 60% from 2022, 50% from 2023 and 30% by 2024. Only customers with total personal loans exceeding VND20 million (US$860) with the company will count towards the cap. Such unsecured loans are typically higher-risk and known as 'cash loans' locally. The rules also add to consumer protection requirements, which should strengthen the sector's social and governance aspects if well-enforced.

The transition timeline follows a year-long industry consultation and provides breathing room for more-concentrated lenders to adjust their portfolios. However, companies will still have to grapple with the challenge of diversifying their loan portfolios while maintaining growth and profitability. The rules are likely to weigh on industry receivables growth, as we estimate that cash loans accounted for over half of total loans of the top-three finance companies in 2018.

Fitch Ratings believes larger, more established finance companies are better-placed to meet the new requirements. The two largest financiers - FE Credit and Home Credit Vietnam Finance Company Limited - have significant exposure to cash loans. Such loans were roughly 73% of FE Credit's and 58% of Home Credit

Vietnam's total loans at end-March 2019 and end-2018, respectively, based on a catch-all cash-loan definition. However, the companies should be able to reposition their portfolios over the next four years in light of their broad distribution networks and product sets. The third-largest competitor, HD Saison, should be barely affected by the rules, as cash loans only accounted for around 32% of its total loans at end-2018.

 

In contrast, newer, smaller companies that concentrate on cash loans may find it harder to shift their business models. They may need to develop additional product expertise and distribution channels to diversify away from cash loans. This may entail greater investment cost and execution risk in testing new business models and product lines.

Fitch expects the operating environment and business models of Vietnam's consumer-finance companies to continue to evolve rapidly. Margins are likely to be compressed in other consumer-finance products as companies seek to expand beyond cash loans. Credit cards, an emerging product for consumer-finance companies, and durable-goods financing may be two such products. Industry profitability remains attractive, but returns have narrowed amid increased competition from new entrants, including some subsidiaries of local banks and fresh capital from large regional financial institutions.

Greater exposure to credit cards may bring finance companies into closer competition with banks, which generally enjoy greater benefits of scale and access to lower cost, more stable deposit funding. Relationships with foreign shareholders who can transfer product know-how or help lower funding costs will be an advantage, though any imported expertise will still need to be calibrated to local conditions. Korea's Shinhan Card Co., Ltd., Lotte Card Co., Ltd. and Hyundai Card Co., Ltd. and Japan's Shinsei Bank, Limited have each purchased or are in the process of purchasing stakes in Vietnamese finance companies in recent years. Hanoitimes

Minh An

Wuhan coronavirus could negatively affect Vietnam's economy: Fitch

Wuhan coronavirus could negatively affect Vietnam's economy: Fitch

Vietnam last year received some 18 million foreign tourists, including 5.8 million Chinese guests.

Vietnam's economic growth to ease slightly in 2020: Fitch Solutions

Vietnam's economic growth to ease slightly in 2020: Fitch Solutions

According to Fitch Solutions, its 2020 real GDP growth forecast for Vietnam is maintained at 6.8%.  

 
 

Other News

.
VN stock market hits record, big names rise
VN stock market hits record, big names rise
FEATUREicon  14/07/2021 

The Vietnamese stock market in the first half (H1) of 2021 broke many records.

Exporters face slew of difficulties due to COVID
Exporters face slew of difficulties due to COVID
BUSINESSicon  14/07/2021 

Though exports remain strong, several sectors face difficulties due to the COVID-19 pandemic and require support from the Government if they are to sustain the growth, experts said.

Ministry proposes reduction in insurance deposits for travel firms
Ministry proposes reduction in insurance deposits for travel firms
BUSINESSicon  14/07/2021 

The Ministry of Culture, Sports and Tourism wants to reduce the value of insurance deposits by 80 per cent to help travel companies that are struggling because of COVID-19.

Mekong Delta: attractive destination for renewable energy development
Mekong Delta: attractive destination for renewable energy development
BUSINESSicon  14/07/2021 

Taking advantage of its natural conditions and investment attraction policies, the Cuu Long (Mekong) Delta has become a destination for investors in renewable energy projects.

Banks agree to reduce lending interest rates from July
Banks agree to reduce lending interest rates from July
BUSINESSicon  14/07/2021 

Commercial banks have agreed to slash the lending interest rate in order to help businesses and people overcome the difficulties caused by the Covid-19 crisis.

Banks lending big to keep agriculture sector ticking
Banks lending big to keep agriculture sector ticking
BUSINESSicon  14/07/2021 

According to the State Bank of Vietnam’s department of credit for economic sectors, as of April credit injected into rural and agricultural development had reached VND2.3 quadrillion ($100 billion), or 24.6% of the banking sector’s total loans.

IFC helps boost green credit in Vietnam
IFC helps boost green credit in Vietnam
BUSINESSicon  14/07/2021 

The International Finance Corporation (IFC) has provided a 100 million USD long-term loan for the Orient Commercial Joint Stock Bank (OCB) to increase the private sector’s contributions to green and sustainable growth in Vietnam.

Hotels as 5-star quarantine sites: new way to make profit
Hotels as 5-star quarantine sites: new way to make profit
FEATUREicon  14/07/2021 

For over the past year, one of the largest 5-star hotels in Ha Long City, Quang Ninh Province, has been used as a quarantine site for visitors who enter Vietnam by air. 

Businesses in HCM City, Long An suspend operations to prevent spread of COVID-19
Businesses in HCM City, Long An suspend operations to prevent spread of COVID-19
BUSINESSicon  13/07/2021 

Authorities in HCM City and Long An Province have suspended operations of a number of businesses so that epidemic prevention measures can be carried out.

Shares nosedive on panic sell-off
Shares nosedive on panic sell-off
BUSINESSicon  13/07/2021 

Vietnamese shares plunged on Monday as panic selling flooded the market, following surging COVID-19 cases, reinforcing fears of further economic pain from restrictions induced by the virus.

Vietnam is second-fastest growing stock market with multi-billion dollar records: report
Vietnam is second-fastest growing stock market with multi-billion dollar records: report
BUSINESSicon  13/07/2021 

The State Securities Commission (SSC) has reported that Vietnam was the second-fastest growing stock market in the first half of the year, despite the fourth Covid-19 outbreak.

Vietnam Airlines resumes several international routes as of mid-July
Vietnam Airlines resumes several international routes as of mid-July
BUSINESSicon  12/07/2021 

Vietnam Airlines announced on July 12 that it will reopen international routes from the country to a number of destinations in Asia, Europe, and Australia between July and October.

Banks make huge profits, hope interest rate reductions are far off
Banks make huge profits, hope interest rate reductions are far off
FEATUREicon  13/07/2021 

Banks have reported huge profits for Q2 and H1 due to high credit growth rates and lending interest rates, while capital mobilization cost has been low.

GDP still grows in midst of tribulations among the poor, businesses
GDP still grows in midst of tribulations among the poor, businesses
FEATUREicon  13/07/2021 

Do GDP calculations take into account the fact that a taxi driver gets poorer by 10 times more as he has to spend VND100,000 on nCoV testing a day, and informal workers have no access to cheap meals in HCM City?

Coal conundrum ahead forces Vietnam to rethink priorities
Coal conundrum ahead forces Vietnam to rethink priorities
BUSINESSicon  12/07/2021 

While the pressure on the environment and issues like climate change are increasing, it remains difficult for Vietnamese companies and the government to turn away from fossil fuels completely.

Debt under control thanks to prudent and effective actions
Debt under control thanks to prudent and effective actions
BUSINESSicon  12/07/2021 

Effective usage of the state budget has helped Vietnam succeed in bringing public debt under control since 2016, ensuring national financial security.

VIETNAM BUSINESS NEWS JULY 13
VIETNAM BUSINESS NEWS JULY 13
BUSINESSicon  13/07/2021 

Khanh Hoa proposes developing Van Phong-Nha Trang expy project

Vietnam spends nearly $2 billion importing meat
Vietnam spends nearly $2 billion importing meat
BUSINESSicon  12/07/2021 

Vietnam's total import turnover of livestock products in the first six months of 2021 is estimated at US$1.82 billion, a year-on-year increase of 8.9 per cent.

VIETNAM BUSINESS NEWS JULY 12
VIETNAM BUSINESS NEWS JULY 12
BUSINESSicon  12/07/2021 

Remittances to HCM City rise by 22.34% in first half of 2021

Businesses adapt to the pandemic, offer workers temporary housing
Businesses adapt to the pandemic, offer workers temporary housing
BUSINESSicon  12/07/2021 

Many businesses and manufacturers are finding ways to adapt to the COVID-19 pandemic, maintaining operations and keeping workers safe.

 
 
 
Leave your comment on an article

OR QUICK LOGIN