Consumer finance in Vietnam, 2021 review    

It is turning out to be another eventful year in Vietnam consumer finance (CF) market. After some glimmers of recovery by early 2021, the sector underwent around 6 months of disruption due to the COVID-19’s fourth wave by Mid-April. However, the growth momentum rallied throughout the last quarter as pandemic pressures eased. This challenging time is also a good game changer that saw the rise of late comers threatening the market share of the elders. While concern about FinCos’ asset quality is still there, 2022 is expected to be a good year for the CF market, characterized by post-pandemic robust growth, diversification of product portfolio and distribution channels associated with digitalization, M&A activities led by foreign investors, and heightened competition forces from alternative lenders such as pawnshops, fintech players.

Loan book growth and Market share

As the growth momentum picked up across the board since Q4, under the hood, the Vietnam CF market closed the fiscal year 2021 with positive results, retrieving a lower double-digit growth of 13.1% YoY. As FinCos’ lending enjoyed an uplift given the gradually unwinding COVID curbs, the growth momentum remained uneven among players. While giants FE Credit, HD Saison became vulnerable to the sudden disruption of the physical networks, younger FinCos Mcredit, Shinhan Finance, Viet Credit with leaner business models found opportunities in the twists and turns to expand their pieces in the pie. Besides portfolio diversification, acceleration in digitalization also prompted the repositioning of market share among incumbent players.

Product composition

Across key product offerings, consumer durable loans (CDL) and personal loans/cash loans (PL) have weathered the pandemic better than the others. Besides the rising need for cash during economic uncertainty, widespread lockdown orders also increased the need for consumer durables serving remote working/studying purposes, resulting in a boost in consumer durable loans. Vehicle loans, on the other hand, continued to be further dragged down as a result of market saturation and severe strains amid nationwide lockdowns. Credit card grew modestly given the broad-based deceleration of major players.

Earnings quality and profitability

Slower credit growth coupled with the implementation of an interest relief scheme diminished FinCos’ earnings in 2021. Despite FinCos’ efforts in optimizing OPEX, accelerating provisioning and a low-interest environment cast significant uncertainty on FinCos’ profitability. The recovery might come from a largely conducive macro backdrop in the post-pandemic that boosts consumer credit demand, FinCos’ expansion to non-interest income segments, especially bancassurance landscape.

Asset quality

FinCos’ asset quality was dampened significantly in 2021 with a steeper rise in the non-performing loans (NPL) ratio. Looking forward, FinCos’ asset quality picture shall be weighed by the positive economic outlook that improves credit growth and repayment capacity of borrowers, and policy evolution, especially in the second half of 2022, when restructuring policies expire (Circular 14/2021/TT-NHNN on deadline for loan restructuring, interest exemption/reduction, and debt category retention will be expired on 30th June 2022).

Regulatory updates

The CF sector is expected to be rotated in the coming years with some policy changes. Notably, Circular No. 17/2021/TT-NHNN on bank card operations officially established an official legal framework for card issuance using the electronic method, facilitating digital banking development as well as credit card adoption. Besides, the draft Decree guiding mechanisms for fintech operation in the banking sector provides a full-fledged legal framework that encourages innovation, prevents financial risk, and promotes financial stability.

Key development trends

Sector rotation has been widely voiced with some key developments that drive the market in the upcoming time.

• FinCos are increasingly tapping into the non-interest income segment, especially bancassurance to enhance profitability while reducing reliance on the conventional business of granting unsecured loans.
• FinCos are facing heightened competition from pawnshop chains with the aggressive expansion of the biggest player F88 to the cash loan landscape under collaboration with retail partners.
• Dealmaking in the CF sector is certainly heating up, fueled by buoyant foreign capital under both direct acquisition and indirect acquisition via regional parent entity.