Consumer finance retains attractiveness

Consumer finance groups are attempting to diversify funding sources

According to a report by brokerage SSI Research, HD Saison - the consumer finance arm of HDBank and Japan’s Credit Saison - will enjoy an increase of 15 per cent on-year in its profit for 2021, reaching VND1.15 trillion ($50 million).

Although there are still areas of concern associated with new cash loans disbursed in 2020, HD Saison’s board also expected that this year, loans to buy motorbikes and home appliances will rise, especially when customer incomes increase along with economic recovery.

The report also showed that cash lending activities of HD Saison has increased strongly in the past year (up 47.8 per cent). SSI Research believed that this is a remarkable point because this is a segment that often has a higher non-performing loans ratio than motorcycles and home appliances loans.

Last year, HD Saison was greenlit to switch from a limited liability to a joint-stock company format. The firm is reportedly preparing for an upcoming initial public offering (IPO).

Meanwhile, VPBank has been mulled over seeking for strategic foreign investors to boost FE Credit’s performance.

According to SSI, due diligence process for FE Credit sale has been conducted. FE Credit, Vietnam’s largest consumer finance firm, is in negotiation with its potential partners, though the discussion progress is somewhat interrupted due to the health crisis.

If the two sides cannot reach a mutual agreement, FE Credit would mull over an IPO by the end of 2021.

If VPBank sells a 49-per-cent-stake in FE Credit at a valuation of around four times compared to the book value, the bank can record an after-tax profit of VND21 trillion ($913 million), SSI noted.

“VPBank owns the largest consumer finance company in Vietnam, FE Credit, which is the key driver of industry-high net interest margin, as well as credit costs. Broadly, consumer loans account for almost 60 per cent of the bank’s total loans and are a core competitive advantage,” noted JP Morgan.

SHB Finance, a consumer finance arm of SHB, is reportedly in the middle of negotiations with a foreign partner for a potential sale.

Previously, international financers have made a big splash on the consumer lending market. For example, Hyundai Card from South Korea bought 50 per cent of shares in the Finance Company Limited for Community (FCCOM) – a subsidiary of local lender MSB – in a deal worth $42 million.

The joint venture would be Hyundai Card’s first overseas operation, which the South Korean firm expected to transfer international know-how and maximise synergies with Hyundai’s business in Vietnam.

Another company, Handico Finance JSC, has also received the attention of both domestic banks such as TPBank and foreign financial groups such as AFS, KB Kookmin Card, and JB Financial Holdings.

By the end of 2020, the State Bank of Vietnam granted operating licenses to 16 consumer finance companies. However, only five are eligible to provide credit card products, namely FE Credit, Home Credit, Lotte Finance, Viet Credit, and JACCS. The much-improved infrastructure for cashless payment is envisaged to further facilitate the growth of credit cards and diversify consumer lending products.

Besides consumer finance as unsecured loans, other collateral-based loans such as pawn shop business are also catching investors’ eyes. Pawn shop chains have gradually proved their and attractiveness compared to traditional ones.

One of Vietnam’s major chains, F88, recorded after-tax profit in 2020 of VND45 billion ($1.96 million). Last year, the firm continuously issued corporate bonds with interest rates around 12.5 per cent after being funded by Mekong Enterprise Fund III and Granite Oak. F88 now has 180 shops expanding in 25 cities and provinces.

Last month, T99, a Saigon-based pawn shop, raised VND20 billion ($870,000) from a Vietnamese celebrity. Despite still in its infancy, T99 aims for a presence of 500 stores in a nationwide network, and file for an IPO in the upcoming time.

Likewise, Vietmoney has just completed series A investment capital from Probus Opportunities Investment Fund – a major shareholder of Srisawad pawn chain in Thailand – and Digi Ventures.

“Probus and Digi Ventures will hold a 30-per-cent stake in Vietmoney and join the board of directors. I am very confident in our company’s rosy outlook. Last year, our revenue rose by 270 per cent on-year, with a network of 23 branches operating in Ho Chi Minh City, Can Tho, and Binh Duong,” said Trinh Van Phuong, CEO and founder of Vietmoney.