Consumer finance in Vietnam, 1H2021 review

The consumer finance market of Vietnam has not yet recovered from the COVID-19 shock. The market expanded by 7% YTD in 1H2021, mainly driven by banks, as FinCos’s were hit harder due to massive closure of POS network following lock-down and social distancing orders in many cities and provinces.

Loan book growth and Market share

Lock-down and social distancing orders have significantly interrupted FinCos’s lending, especially in HCMC, Hanoi, and their surroundings which are pandemic hardest-hit regions and also the primary markets for FinCos. Major players with larger loan books are more exposed to the effects of COVID-19, resulting in lower or negative growth. Young FinCos are more resilient, with mid-sized FinCos managed to sustain growth thanks to the incorporation of online platforms. The drastic decline in the market share of FE Credit had provided opportunities for smaller FinCos to gain market share through product diversification.

Product development

FinCos still leveraged cash loan as the key product but its contribution declined slightly the impact of COVID-19 on biggest players as well as tightening policies on cash loan disbursement under Circular No.18/2019/TT-NHNN. FinCos are diversifying their portfolio, increasing the proportion of indirect loans (CDL and 2WL) to follow the transition roadmap set in the Circular. Meanwhile, credit card remains an attractive segment and is expected to face heightened competition when new players participate in the future.

Earnings quality and profitability

Abundant liquidity and lowering interest rates helped drive down the cost of funds for FinCos, hence safeguarding their NIM. FinCos also managed to preserve profit thanks to the optimization of OPEX during the pandemic. However, sector earnings is forecasted to decline in the following quarters as FinCos ought to provide relief packages including loan restructuring and interest reduction or exemption to support customers affected by COVID-19.

Asset quality

Asset quality deteriorated as pandemic hit key customer base of FinCos, weakening their repayment abilities. Prolonged social distancing orders and close-down of offline POS at partners’ sites impeded the debt collection process, hiked up the NPL ratio of the entire sector.

Regulatory updates

In the wake of the recent pandemic outbreak which reached its peak in late June and the third quarter of 2021, the SBV issued Circular 14/2021/TT-NHNN amending essential clauses of the Circular 03/2021/TT-NHNN, extending the eligible period and the deadline for loan restructuring, interest exemption/reduction, and debt category retention. The SBV also replaced Circular 02/2013/TT-NHNN (amended by Circular 09/2014/TT-NHNN) with Circular 11/2021/TT-NHNN on debt collection and bad debt settlement in order to improve the effectiveness of asset quality management of CIs.

Key development trends

The COVID shocks and the ever-changing market environment have encouraged CF players to take up the significant initiative to change their market position:

• The emerging of BNPL as a potential new product for FinCos thanks to the booming of e-commerce and digital payment.
• Regional players entered the CF market through M&A deals, expected to facilitate the growth of the sector in the future.