return icon

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 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%.  


Roaming Hanoi for 1,001 specialties from different parts of Vietnam

There is no need to travel far, just a walk around Hanoi will help you taste specialties across Vietnam.


PM to attend ASEAN-EU commemorative summit, visit three European countries


Da Nang to host Vietnam International Travel Mart

Share purchases by foreign investors hit record

In the week from November 28 to December 2, the Vietnamese stock market saw foreign investors’ net purchases reaching VND9.15 trillion, raising the total net purchase since early November to VND20.2 trillion.

Employers sell private assets to offer Tet bonuses to workers

Many enterprises in Vietnam are struggling to give Tet bonuses for their workers.

Promoting PPP cooperation to develop green agriculture in Vietnam

Promoting public-private partnerships will help improve sustainability in the agricultural sector, according to experts speaking at an event in Hanoi on Monday.

Undervalued banks winning bet for investors

The recent declines of the securities market have moved bank stocks to an 'attractive zone'. Banks were trading at a P/E multiple of 7.1 and P/B of 1.3 in late November, equivalent to the lows in March 2020.

Park Hang-seo receives Order of Diplomatic Service Merit

Head coach of the Vietnamese national team Park Hang-seo has been awarded the Order of Diplomatic Service Merit, Heungin Medal, by the Republic of Korea’s President Yoon Suk-yeol for his contribution to promoting friendly ties with Vietnam.

HCM City Party Secretary: robbery must not exist on streets

HCM City Party Secretary Nguyen Van Nen said the city has a bad reputation for robbery and he has asked relevant bodies to deal with this.

Positive prospects for Vietnam’s stock market in 2023

The stock market saw a trading session with the strongest growth rate in Asia on December 2 as the Vietnam-Index surged by 4.22 percent.

A look at VN fashion through “Taste of Heritage”

After three years of suspension due to the Covid-19 pandemic, the Vietnam International Fashion Week Fall/Winter 2022 returned to Hanoi in late November with eye-catching collections in the spirit of 'Taste of heritage'.

Vietnamese interested in metaverse and fintech

According to a recent report by Meta and Bain & Company, Vietnam is among the top 3 countries besides Indonesia and the Philippines to adopt new technologies such as fintech and metaverse.

The opportunity for a chip-making industry in Vietnam

Chip production will fuel Vietnam's aspiration to become a prominent manufacturing hub in the region.

R&B legend Babyface, 2022 Masked Singer Vietnam’s winner to be on stage together

The much-awaited item of the 2022 “Ho Do" International Music Festival in HCMC will be a duet performance of R&B superstar Babyface and singer Ngoc Mai who won the Masked Singer Vietnam 2022, said Director of the festival, musician Huy Tuan.

HCM City to launch overnight cruises along Saigon River

Ho Chi Minh City’s tourism authority plans to launch overnight cruises with ships accommodating hundreds of people along the Saigon River starting next year.