Consumer finance in sights of megabanks

March 15, 2022 | 09:00
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The consumer finance industry in Vietnam continues to be buffeted by pandemic-induced turmoil, but certain overseas investors are seeking novel responses to capitalise on the country’s tremendous promise.
Consumer finance in sights of megabanks
Consumer finance in sights of megabanks, photo:

Japanese megabanks Mitsubishi UFJ Financial Group (MUFG), Mizuho Financial Group, and Sumitomo Mitsui Financial Group (SMFG) are among the qualified bidders for Home Credit’s assets in Southeast Asia and India, according to Bloomberg.

Industry insiders revealed that Southeast Asian ride-hailing and delivery behemoth Grab has also advanced to the upcoming round for a potential merger and acquisition (M&A) deal. Home Credit is expecting its subsidiaries in Indonesia, Vietnam, the Philippines, and India to be valued at $2-2.5 billion.

Bloomberg stated that some suitors are keen on acquiring the full Southeast Asian and Indian portfolios, while others are solely interested in Southeast Asia. The corporations, however, are still debating whether or not to proceed with a merger.

In Vietnam, market watchdogs predicted that MUFG would strengthen its footprint in the country’s consumer finance landscape via SHB Finance as a result of the prior merger between Krungsri and SHB Finance in late 2021.

Before to the purchase of SHB Finance, Krungsri is said to have exhibited a strong interest in FE Credit.

SMFG, likewise, is executing its know-how through its 49-per-cent ownership in FE Credit – Vietnam’s largest consumer finance firm.

Meanwhile, Mizuho has not hopped on the consumer financing bandwagon in Vietnam thus far.

In the case of Grab, which has already posted larger-than-expected losses as well as a 55 per cent decline in its stock price, the acquisition of Home Credit’s assets might help broaden and grow its financial services division.

Home Credit was established in 1997 and now operates in nine countries spanning Asia, Central and Eastern Europe, and the former Soviet Union. The consumer finance company has been operating in Vietnam since 2008. Almost 6,000 Home Credit employees serve more than 12 million customers, most of whom are not served by traditional banks.

Furthermore, Home Credit is also among the trailblazers in publishing a formal environmental, social, and corporate governance (ESG) report in Vietnam.

“While this is the first time we have published a formal ESG report, the principles have long been embedded in our business. The report complements codified policies that are in-place companywide. It has always been integral to Home Credit’s approach, even when it wasn’t formalised under an ESG framework,” said Annica Witschard, CEO of Home Credit Vietnam.

Elsewhere, the forthcoming sale of MSB’s consumer finance arm FCCOM is expected to be completed in 2022, which would yield MSB a large profit of around $87 million, highlighted MSB CEO Nguyen Hoang Linh.

Japanese retail giant AEON is rumoured to be a potential foreign partner of FCCOM after the latter’s collaboration with South Korea’s Hyundai Card turned sour.

Since 2020, AEON has been preparing for an assessment of the Vietnamese consumer credit market.

If a new consumer finance company is set up, AEON’s retail business could benefit from the buy now, pay later method.

It was previously reported that AEON Group was interested in the consumer financing firm Handico Financing JSC, held by the Investment and Hanoi Housing Development Corporation, even though it was under the State Bank of Vietnam’s special supervision.

A source told VIR that Hanoi-based lender TPBank seems to be the most plausible contender to acquire Handico.

Masataka “Sam” Yoshida, head of the Cross-border Division of RECOF Corporation and CEO of RECOF Vietnam, highlighted that ultra-low interest rates and slow domestic progress have pushed Japanese lenders to actively reach out for cross-border M&A deals throughout Asia in recent years.

“Although large Japanese corporations already present in Vietnam retained two-thirds of the total M&A volume, the portion that was lost came from smaller Japanese corporations that were willing to make their first forays into Vietnam via tie-up deals,” Yoshida explained.

“These businesses are still waiting for the lifting of certain limitations before proceeding with the already-planned operations. The number of agreements that are now pending will almost definitely increase to close the gap that has been developed over the previous two years.”

Dr. Gregory Bournet-Partner and head of Corporate Finance PwC Vietnam and Malaysia

Consumer finance in sights of megabanks

Most consumer finance companies in Vietnam witnessed an increase in their non-performing loan (NPL) ratio. Most financial companies recorded an increase in NPLs, including those with strong risk management.

As growth remains difficult in the short term, consumer finance companies need to flexibly apply circulars from the State Bank of Vietnam to better manage the NPL ratio. They provide guidance for rescheduling repayment terms, interest rate exemptions and reductions, and debt classifications to support customers affected by the pandemic. These circulars will support consumer finance companies to release the pressure regarding provisions across 2021-2023. Another measure consumer finance companies can consider is selling part of their consumer loan portfolio to recover debts.

Vietnam’s financial services industry is still largely underdeveloped compared to regional peers, with just over 65 per cent of the population having a bank account compared to over 95 per cent in Singapore, Japan, and South Korea. Thus, the unbanked segment has been increasingly targeted by consumer finance and fintech companies in recent years.

Vietnam also has a very high smartphone and telecom coverage, while the fintech and digital technology sectors are emerging strongly. These factors will contribute to the increase in consumer access to financial products and services and support the positive growth of the consumer finance sector.

The revised Law on Investment 2020 has listed debt collection services on the list of banned business investment activities, which renders credit institutions and lenders unable to rely on third-party collectors and will require them to adapt to new ways of collecting and recovering debts. As an alternative, we see that they will need to set up their own professional in-house collection departments.

Lastly, credit institutions would also need to coordinate closely with third parties such as lawyers, law enforcement, and enforcement agencies to settle bad debts. Consumer finance companies have adapted well to these regulatory changes and enhanced their collection capabilities to optimise their operations.

By Luu Huong

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