Consumer finance in major tie-up tendency

August 19, 2021 | 10:00
The pandemic-triggered turbulence continues to gnaw at the consumer finance industry in Vietnam, but some players are exploring potential new approaches to the challenges, particularly from some international investors.
FE Credit has the biggest market share in Vietnam, but profits are nevertheless falling, Photo: Le Toan
FE Credit has the biggest market share in Vietnam, but profits are nevertheless falling. Photo: Le Toan

FE Credit – the largest consumer finance company in Vietnam, accounting for more than 50 per cent of market share – has reported declining profit since last year.

In the first half of 2021, the company’s pre-tax profit was only $52.2 million, equivalent to nearly 50 per cent of the same period last year. FE Credit only contributes 12 per cent to VPBank’s consolidated profits, while this ratio before the pandemic was between 40-50 per cent.

Securities group VNDIRECT believes the pandemic has taken a toll on the consumer finance industry. FE Credit’s non-performing loans (NPL) spiked 9.1 per cent at end of H1, from 7.7 per cent at the end of the first quarter and 6.2 per cent at end of 2020. However, the mega deal of $1.4 billion for 49 per cent stake in FE Credit between VPBank and Japanese lender SMFG would create more business synergies for VPBank to leverage other banking services.

“VPBank is in the process of finalising the paperwork to recognise this profit, which is expected in the second half of 2021,” VNDIRECT confirmed to VIR. “FE Credit will focus mainly on familiar customers, and try to expand to other potential customers such as doctors and teachers. In addition, SMFG will help FE credit to increase its influence in the Vietnamese market.”

Meanwhile, HDSaison – the consumer finance arm of HDBank and Japan’s Credit Saison – recorded a 5.5 per cent increase in its pre-tax profit in H1/2021. The lender’s cost-to-total income ratio continues to improve strongly, currently only 46.7 per cent, lower than last year’s figures. Its NPL ratio at the end of June remained the same as at the beginning of the year.

Currently, FE Credit is the company with the largest market share, followed by Home Credit, HD Saison, and MCredit. Home Credit is the only wholly foreign-owned entity.

While FE Credit and HD Saison are experiencing a dwindling path in the last two years, MCredit, a company under the ownership of MB and Shinsei Bank of Japan, has witnessed a remarkable expansion. It reported pre-tax profits of $15.04 million for the first half of the year, up 188 per cent over the same period last year.

MCredit targets low-, middle-income, and underbanked customers, without collateral. Despite its late arrival, MCredit entered the top four consumer finance companies in Vietnam, although its charter capital was only the tenth-highest.

Brokerage ACB Securities (ACBS) cautioned that the rapid growth can also trigger bad debt risks to MCredit. In 2021, ACBS expects bad debt to decrease due to the firm’s stricter policy since last year, and because it no longer focuses on aggressive market growth as in the previous periods.

Elsewhere, privately-held lender SHB last week revealed it is working with 2-3 partners to sell capital at SHB Finance – the bank’s consumer finance subsidiary, with the deal almost completed.

Besides this, SHB is also selling its shares in two overseas subsidiaries, SHB Laos and SHB Cambodia. SHB wants to partner up with foreign investors to diversify its sources and enhance its operation to be in line with international standards.

“SHB, as the parent company, will selectively choose the healthiest partners, those with a strong financial background,” said Do Quang Hien, chairman of SHB.

Meanwhile, Nguyen Hoang Linh, MSB CEO, said that the bank is negotiating to divest all stakes in its consumer finance arm FCCOM, with the final arrangement slated to be completed in 2022.

MSB’s initial plan was to find a foreign investor to receive 50 per cent of the bank’s ownership in FCCOM. However, the bank now plans to divest all stakes in the consumer finance company.

In April, South Korean credit card company Huyndai Card failed to acquire a 50-per-cent stake in FCCOM in a deal that would have been worth roughly $42 million.

Meanwhile, other fintech players also picked up on the consumer finance industry. E-wallet player MoMo is striving to expand its suite of services, which will help to branch out into areas like motorcycle insurance and consumer loans. In addition, it has acquired a software company that aims to speed up product development, Nikkei Asia reported.

Tuong Nguyen, executive vice chairman and co-CEO at MoMo, emphasised that the diverse portfolio of services has helped to drive revenues to the firm.

Key development trends

Besides enabling consumer finance companies to reshape their businesses to adapt to the new normal, the unprecedented COVID-19 outbreaks have accelerated key trends in the industry.

- The pandemic has prompted the acceleration of the digital transformation for customer experiences among consumer finance companies;

- The launch of mobile money and the booming of digital payments has brought both challenges and opportunities for companies, especially their credit card businesses; and

- Mergers and acquisitions are game-changers fostering future growth in the consumer finance market. The government’s policies support sector consolidation and expansion of consumer finance companies to repel black credit market.Source: Fiingroup

By Celine Luu

What the stars mean:

★ Poor ★ ★ Promising ★★★ Good ★★★★ Very good ★★★★★ Exceptional