The consumer finance market has suffered severe setbacks with the pandemic from approaching new-to-bank customers to collecting debts from existing customers. The country's economy has transitioned to a new normal, and commercial and service activities have almost entirely resumed, boosting consumer credit demand. FinCos were generally on the mend and ramping operations by late 2021 but had not yet fully regained their pre-pandemic growth momentum. FinCos portfolio is driven by unsecured loans and low-income customers and hurt more in the pandemic, hence takes longer time to recover fully.

Going forward, the CF market is poised for a strong recovery by the end of 2022 thanks to the peak season effects and extension of credit growth quota for some banks and FinCos as announced by SBV by early September.

Loan book growth

1H2022 period of growth set the CF portfolio of both banks and FinCos on a path to recovery. The resumption is backed by solid consumer credit demand that bounced back since October last year when business operations and service activities turned normal.

The recovery stories are different among FinCos. The key lies in tapping into the right customers. Also, companies with moderate NPL levels in 2021 tend to have larger space to boost new loans in 2H2022 when the pandemic is behind.  

Market share

COVID is a game changer that drove the competition fierce than ever before. 1H2022 also saw some distribution of market share of companies in the top 4 and Mcredit keeps threatening the top 2 with spectacular growth regardless of COVID headwinds. Small FinCos also get the point to recoup quickly after the pandemic. Easy Credit attained 3-digit growth, offers loans via ViettelPost app with fully online journey. PTFinance also promises growth potential in the time to come by putting more efforts into digitalization.

Product composition

Cash loan share has been narrowed down in loan portfolio of major FinCos as a result of their initiatives in compliance with Circular 18/2019. CF players have taken initiatives to increase the proportion of loans with indirect disbursements (CDL, 2WL, credit cards, etc.). Vehicle loans and consumer durable loans acquired 1.1ppt and 0.3ppt of market share in 6 months driven by both supportive demand and supply sides: (1) Demand recovered post-pandemic, especially for consumer discretionary goods. Meanwhile, Credit cards continued to reveal potential thanks, gaining 3.5ppt thanks to cross-selling between products employed as a typical strategy by FinCos to grow this market segment: 1. Selling conventional products (CDL, 2WL, 4WL) at the first touch point and then offering cash loans or credit cards to existing customers with good credit history.

Liquidity and funding

Banks and FinCos are facing increasing costs of funding due to the liquidity crunch on most of funding channels. In market I, for the first time in many years, Credit growth outstripped the growth of customer deposit growth by 2.6 times for the fact that credit institutions accelerated lending to capture huge demand since business operations and consumer spending has recovered. Meanwhile, in the second the interbank rate climbed to a 10-year record high following a series of SBV intervention to control VND liquidity to stabilize foreign exchange rate and inflation amid the escalation of USD in the international market. In other words, cost of funds will be higher for banks and FinCos as they must raise deposit rates to attract funds for facilitating high credit demand in the time to come.

Earnings quality and profitability

Sector average NIM of active FinCos slightly reverted in response to the improvement of interest income growth in the proportion of loan growth, especially from some players such as Home Credit, Mcredit and HD Saison. However, FinCos are facing rising funding cost due to a liquidity shortage in the banking system as addressed earlier, which might negatively impact on interest margin from the second half of the year

Asset quality

FinCos’ NPL ratios remained at high level as of June 2022. As the pandemic and its effects continued to cascade through 2022, many consumers have never faced unemployment and reduced income which challenged their affordability for debt repayment. Going forward, asset quality of FinCos is expected to get better in the coming time along with strong credit growth and recovered debt repayment capacity of borrowers. However, given such deterioration, it will take some quarters or even a year for FinCos' customer portfolio of subprime borrowers to recuperate to pre-pandemic asset quality level.

Key development trends

The CF sector has been widely voiced with some key developments that drive the market in the upcoming time:

• Buy now, pay later is poised to thrive as a new customer acquisition & retention channel
• Pawnshops' activities flourished posing fierce competition to mainstream CF providers
• M&A may heat up again with potential targets