FE Credit has ended the first half of 2019 with continued growth momentum, along with strong growth in profitability. The results reveal much about the company’s prospects in the years to come.
|FE Credit has reported solid performance in the first half of the year |
Loan books without institutional loans have grown by 9.4 per cent compared to the first quarter of 2019 and by 26 per cent compared to the second quarter of 2018. Despite a smaller growth rate in loan books, the corresponding revenue has increased by 13 per cent, a double-digit growth compared to the first quarter of this year and 41 per cent against the second quarter of 2018. An improving portfolio mix and credit quality have helped in bringing the ratio of non-performing loans to 5.4 per cent (Vietnam Accounting System standard). This demonstrates that the strategy of deepening the share of existing customers’ wallet is yielding results in terms of improving portfolio asset quality with known customers.
Foundation for sustainable growth
There are three main growth engines that have laid the foundation of FE Credit’s loan book growth in this quarter:
1. Cross-sell and Loans Top Up remain the largest contributor to FE Credit’s total loan book. Thanks to FE Credit’s investment in big data analytics, the resultant ability to analyse and identify potential customers for targeted offers has led to cross sell/top up growth of 10 per cent on-quarter and of 44 per cent on-year, with such loans constituting 54 per cent of the total portfolio.
2. FE Credit’s new loan disbursements to new customers has recorded a growth of 9 per cent compared to the first quarter of this year and 24 per cent versus the second quarter of last year, making it the second-largest contributor to total loan books. This growth has been assisted by the fully-automated lending platform $NAP – one of the most popular finance apps in Vietnam – which has garnered more than 1.4 million downloads. $NAP has increased the awareness and self-serve accessibility of FE Credit loan products for new-to-bank customers.
3. As standards of living are improving across Vietnam, the need for consumer durable loans and two-wheeler loans issued at the point-of-sale continues to grow steadily. FE Credit’s total loan at POS (point of sale) make up 9 per cent of the total loan books and grew nearly 10 per cent on-quarter. FE Credit has captured increasing market demand by boosting strategic partnerships with leading retailers who make up the bulk of the home appliances and two-wheeler sales in Vietnam.
Besides these three pillars of FE Credit’s loan book, credit cards also made a substantial contribution to the growth of ENR balances. Credit Cards has witnessed a growth of 26 per cent compared to the first quarter of 2019 and over 102 per cent versus the second quarter of 2018, with the total credit card base reaching over 1.7 million. The incredible growth rate of the credit card portfolio signals massive future growth opportunities for FE Credit on revolving credit products.
Improving earnings quality by revolving loan model
FE Credit’s credit card business is one of the fastest growing in Vietnam both in size and volume. It currently makes up over 40 per cent of total net receivables. Credit Cards offers a more engaged relationship with customers, since it is used for everyday lifestyle spends – this engagement is evidenced by the fact that card spending in the second quarter of this year was more than twice as high as in the same quarter last year.
Improving profitability with improved cost management and portfolio quality
NPL reduction has been on the right track as this number has reached 5.4 per cent, below the internal benchmark of 6 per cent. Lower NPL is attributed to the strategic shift to cross-sell and credit card issuance, making better use of on-use behavioural information for risk-based-pricing as compared to fresh personal loans to new customers.
Cost-to-income ratio has reduced to 30 per cent in this quarter, thanks to digitisation and other initiatives to drive cost efficiency. The improvement in cost-to-income ratio has been through conscious effort to digitise manual operational processes, and with a focus to reduce operational costs such as postage and courier services, among others.
Pre-tax profit grew by 113 per cent on-year in the past quarter and 79 per cent on-quarter as a result of the above improvements across all business parameters.
Increasing omni-presence at centre stage of future growth
FE Credit’s positive trajectory validates its transition to a new growth phase in the coming years with higher profitability and deeper customer engagement.
In the first phase of its journey, FE Credit’s growth was largely driven by the expansion of its physical distribution. For the last two years, FE has focused on digitisation and gained tremendous success which is evident in its business results. In the next phase, FE Credit has a vision to become omnipresent across all consumer touch points with relevant offerings and an always-available revolving credit line. In order to deliver on this new vision, the company has tied up with many global leading fintech players and will enter into strategic partnerships to make credit available at customers’ fingertips, on their mobile phones.
FE Credit’s success in getting higher customer engagement will be the next step for its growth plan in today’s hi-tech era.