Consumer credit is booming in Vietnam

VP Bank’s newly released finance report showed that, of the VND8.1 trillion worth of pre-tax profit the bank had in 2017, FE Credit, its finance company, contributed 50 percent. 

The permitted credit limit growth rate in 2017 was 40 percent, while FE Credit’s was 39 percent.

FE Credit has had high profits over the last five years since the consumer lending market began developing strongly. The company recently signed a contract on borrowing $50 million from Lion Asia I (RB) Limited (Lion Asia) which will help it expand lending.

VP Bank’s CEO Nguyen Duc Vinh said consumer credit will develop well in the next 10 years, though VP Bank doesn’t think FE Credit will continue to make up 50 percent of profit forever. Retail banking is the bank’s most important business.

FE Credit has made big profits during the consumer credit explosion in Vietnam. The National Finance Supervision Council has reported that consumer credit soared by 65 percent in 2017.

Infocus, a market analysis firm, estimated that Vietnam’s consumer finance market reached VND646 trillion in 2016 and the figure would rise to VND1,000 trillion by 2019 with the annual growth rate of 29 percent.

According to Rong Viet Securities (VDSC), the capital for consumer lending was mostly from the banking system, about $23.27 billion, or 87.6 percent in 2016. Finance companies provided 12.4 percent.

FE Credit is the biggest lender which holds 48.4 percent of market share, followed by Home Credit with 15.7 percent, HS Saison 12.3 percent and Prudential Finance 8.1 percent. All the companies have annual two-digit growth rates, according to Momentum Work.

The market share held by state-owned banks increased sharply from 39 percent to 45.7 percent, while the market share of joint stock banks and finance companies has dropped from 47 percent in 2016 to 42 percent in 2017.
VDSC said the high net interest rate margin (NIM) of 20 percent prompted companies to rush to provide consumer loans.

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 percent in provisions that FE Credit has to make against risks.

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Kim Chi