Vietnam Consumer Finance Report 2014 is the second issue published by StoxPlus covering this segment. Our first issue was released in 2013, covering consumer finance (“CF”) market data up to 31/12/2011. Our 2013 report was the first in-depth sector research for consumer finance in Vietnam.
What’s new in this Issue? Taking into account feedbacks from clients on the Issue 1, in addition to the comprehensive analysis of the market itself, the Issue 2 covers a section on macroeconomic context and policy development that having significant impacts on the CF business. StoxPlus also analyzes how the bank and non-bank consolidation ongoing will likely create change the landscape of CF market in Vietnam in the next few years. Another improvement in this Issue is that StoxPlus also indicated certain market trends relating to motorcycles, used cars and electronic devices and driving factors.
The landscape of CF market in Vietnam would be fundamentally changed in the next few years:
- Total CF market size at US$8.8bn as at 31/12/2013, increasing by 15% compared to 2012. However, this includes mortgages as per the definition under Vietnamese regulation. As such, the consumer loan consists of housing loans (mortgages and housing improvements), vehicle loans (automobile and motorcycle loans), home appliance and kitchen wares, credit cards, overdraft etc pas per the definition under Decree 81 by the State Bank of Vietnam.
- Pure CF market is still small and at low penetration with few players active: Currently, Vietnam consumer finance market consists of three types of players, including Joint Stock Commercial Banks (JSCBs), foreign CF companies (PPF Vietnam, Prudential Finance, SGFV/HD Finance), and other providers (such as trade finance companies like ACS). Pure CF market (total loan book by CF companies) is estimated at US$680 millions in 2012 only, a 15% increase compared to the year before. However, few CF players enjoyed a dramatic growth in 2013 such as PPF Vietnam. For JSCBs, VP Bank and Mekong Development Bank are the most active in this market with total loan book of a similar scale to the foreign CF companies. For most other JSCBs, consumer lending could be existing at some forms but it is mixed in lending to individuals and no clear CF business model established.
- Local banks will expand to CF market: Many banks such as Mekong Development Bank, VP Bank or HD Bank now turned to a retail banking / CF strategy to improve their bottom lines in a consolidated basis. Why? Since 2010, banks suffered from a high ratio of non-performing loans (which is estimated to be as high as 15%) as a result from the high concentration in corporate lending including State-owned enterprises (approximately 73% of the country loan book at 2012 end is attributed by corporate loans). Due to the financial crisis (2008-2009) and then the economic downturn (2009-present), credit growth picked up only modestly in real terms, mostly concentrated in export-oriented and agricultural sectors, despite a significant decline in lending rates recently. The reason is due to very low credit demand from corporate and businesses. Both ROA and ROE of the Vietnamese local banking system in 2012 decreased in comparison to 2011. ROA fell by over 27% from 2011 to 2012, while ROE fell by 33%.
- Strong interests from foreign industry players: StoxPlus observes foreign interests from Japan, Europe, Russia and Korea at a number of local targets including well established CF player such as HD Finance (formerly SGFV), finance companies who belonged to a State-owned enterprise who are forced to divest their non-core business.
However, CF businesses has been facing many challenges: Many challenges are noted from regulation perspectives (licensing, M&A, permitted activities, etc) and operational perspectives (sales channel development, collection methods and underwriting system) and market information such as a good credit bureau. In addition, like any market elsewhere CF lending rates are normally much higher than the lending rate to corporate and individuals given the nature of small and volume-based credit model but CF players in Vietnam are facing some negative reaction from local media’s news headlines for the high rate. Our source has also indicated that a draft circular by SBV are under progress to regulate the lending rate for CF business in Vietnam.
CF is expected to continue its fast-growing trajectory due to important growth triggers. Pure CF market had modest growth in 2012, but expanded rapidly in 2013 with more potential for growth in the coming years. Reasons for this forecast include: growing middle class and affluent population, young population with a “borrowing-to-buy” culture, and soaring interest for foreign players to get into CF business.
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