Consumer finance in Vietnam, 2020 review   

Vietnam’s consumer finance (CF) market has dipped to low double-digit growth (10.7%YoY) after a year of hardship. Changing dynamics, intense competition, customers with affected income amid COVID-19, and tightening regulations on cash loans disbursement under Circular No. 18/2019/TT-NHNN jointly exerted pressure on CF growth. However, despite the headwinds, Vietnam CF managed to secure over 20% of the country loan book.

Product Composition

By product category, cash loans remained the largest contribution to growth despite its transition roadmap under Circular No. 18/2019/TT-NHNN. The modest growth of cash loans at most FinCos is driven by low associated expense, simple lending procedures, and rising need for cash during periods of economic uncertainty. Meanwhile, installment loans (Consumer durables loans, Vehicles loans) recorded negative growth, which could be attributed to weakening purchasing power along with market saturation under the impact of the pandemic. Credit card, on the other hand, is the only segment that witnessed double-digit growth. The entrance of two new players, as well as other FinCos’ plans to penetrate the credit card business, are expected to intensify competition in this segment.

Loanbook growth and Market Share

Following the spread of the pandemic, most FinCos witnessed slower growth due to unfavourable market conditions as well as their cautious lending strategy over the fear of mounting bad debts. Notably, some even experienced negative growth. However, there are still some outperformers who achieved robust growth thanks to lean business models.

Regulatory updates

Given the lingering effect of COVID-19 on the economy, SBV has been responsive to roll out supportive policies to address both FinCos and customers affected by the pandemic. The most recent regulation is Circular No. 03/2021/TT-NHNN on debt rescheduling, interest rate exemption and reduction, and debt classification assisting customers affected by COVID-19. 2021 is considered the year of changes for FinCos as this is the first year in the 3-year roadmap on the reduction of cash loans disbursement as stipulated under Circular No. 18/2019/TT-NHNN. Moreover, 2021 is also the year that Circular No. 22/2020/TT-NHNN with the transition into chip-based card comes into effect.

Earnings quality

Sector NIM followed the downward trend as the market has gradually grasped and absorbed the impact of COVID-19. The contraction of NIM could be attributed to a more conservative strategy as well as the deceleration of the installment market. However, the impact of the pandemic to profitability varies among FinCos in which some FinCos with steady growth combined with the advantage of low cost of funds outperformed the others.

Asset quality

Higher exposure to bad debts amidst COVID-19 has been translated into FinCos’ balance sheet, with sector NPL trending upward across the board. Most FinCos witnessed the increase in NPL, however, the increase in NPL has been more significant to those posting modest loan growth. As a result, most FinCos set aside larger provisions to address accelerating NPL to guard themselves against the rising pressure on asset quality.

Key development trends

Besides enabling FinCos to reshape their businesses to adapt to the new normal, the unprecedented COVID-19 outbreak accelerated the following key trends in the CF market:

• The pandemic prompted the acceleration of digital transformation of customer journey amongst FinCos
• The launch of mobile money and the booming of digital payment brought both challenges and opportunities for FinCos, especially their credit card business
• M&A emerged as the game-changer to foster future growth given the strong growth potential of the CF market and the Government’s policies that support sector consolidation and expansion of FinCos to repel black credit market.