Intense competition for consumer loans slows financing companies' growth

Vietnamese financial data provider FiinGroup said in a recent report that year-on-year growth of outstanding consumer loans slowed down to 30 percent last year compared to an average 59 percent annual growth in the previous five years. 

Finance companies' revenue growth is also falling at 15.3 percent last year compared to 38.1 percent in the previous year, it said. 

Competition has intensified in the consumer loans division as new players enter the market. Vietnam had very few finance companies in 2015 but by 2018 there were 16 firms permitted to operate, not counting alternate lending and pay-day loan platforms, FiinGroup said.

New player MCredit has gained over 5 percent of market share within two years year after its launch, thanks to a strong focus on cash loans, followed by SHB Finance and Easy Credit, who have also adopted a similar strategy.

FE Credit, the biggest player so far, saw its market share drop from 48.9 percent in 2017 to 47.3 percent last year. 

Companies are using different growth strategies. While some prioritize profitability, risking a high non-performing loan rate, others prioritize better asset quality and capital adequacy.

FE Credit has been a pioneer of the first strategy by launching new products and making investments in technology innovations. 

Its considerable loan growth of 19 percent is accompanied by a high non-performing rate of 6 percent. 

Using the second strategy, Home Credit has posted high returns on asset and equity, while the non-performing loan rate was 4 percent. It expects stronger growth in the near future, having struck a strategic partnership with e-wallet firm Momo.

But finance companies are also set to face more challenges. A draft regulation prepared by the State Bank of Vietnam to reduce bad debt will only allow them to offer personal loans to people with a good credit history.

If the regulation comes into effect, cash loans cannot exceed 30 percent of a company’s total loans for consumer durables.

Analysts have expressed concern about some of the provisions of the draft regulation. Ho Chi Minh City Securities Corporation (HSC) said in a note that most finance companies give personal loans to first-time debtors who have no credit history, and so the stipulation would cause their revenues to plummet.

"If the draft law is approved, Vietnam’s consumer lending industry will see obvious slower growth."

Outstanding consumer loans were equivalent to 19.7 percent of Vietnam’s outstanding loans last year, up 3 percentage points from 2017, according to FiinGroup.