FE Credit scores hat-trick of solid growth over three years

FE Credit expects hat-trick of solid growth over three years

A maturing market

Whilst its 2018 annual report has not yet been officially released, the largest consumer finance firm in terms of market share in Vietnam has revealed a number of indicators showing its overall performance for the year. Accordingly, FE Credit has been able to maintain its thrust in credit disbursal over the course of the year on the same pace recorded in prior years. According to Kalidas Ghose, CEO and vice chairman at FE Credit, the company disbursed an average of VND4.5 trillion ($195.7 million) in credit per month till September. The figure has then growing at a double-digit rate per month during the last quarter, with the month of December seeing a record high of 50 per cent hike in credit disbursals.

“Such an increase in disbursals of more than 50 per cent in three months is a rare occurrence in a volume-driven retail business consisting of small ticket loans like consumer finance,” commented the CEO in a recent interview in Ho Chi Minh in early January. “FE Credit has actually consolidated its position and it has been able to not only build up on its success [in the previous years], but also to perform relatively better than the rest of the players in the industry, especially the leading players who have been our key competitors in the past.”

In the first nine months of 2018, FE Credit scored an almost 30 per-cent increase in accounts and a 23 per cent swell in new customers year-on-year. During the first nine months, its revenue reportedly advanced by 15 per cent on-year while expenses went down by 18.5 per cent compared to the set target. Risk cost, however, added up to VND5.5 trillion ($239 million), up VND1.1 trillion ($48 million) and VND900 billion ($39 million) on top of the original target of VND4.4 trillion ($191 million) planned for 2018 and the 2017 risk cost, respectively.

StoxPlus stated in its Vietnam Consumer Finance Report 2018 that by the first half of 2018, consumer loan balance grew by 6 per cent year-to-date to reach some $51 billion from the $48 billion of 2017. While the growth rate is observably slower than in the 2013-2017 period, with the peak growth of some 150 per cent in 2015, there is still space for growth in the consumer finance market, with perhaps slower but steadier pace over the long term, thanks to the large proportion of the population that is due to join the workforce and a booming economy where income levels are on the rise.

To explain FE Credit’s softer momentum in the first half, Ghose said it was due to an inopportune drop in collections efficiency, despite witnessing a sales burst at the beginning of the year. “During the first half of 2018, FE Credit has seen certain effects of competition, in the form of losing some key staff operating in the front line, especially in the collection side. However, FE Credit was quickly able to revert the situation and build capacity rapidly with a long-term, sustainable view in mind. The effect of such capacity build-out was seen within 2-3 months, by which time the portfolio performance returned to normal,” shared the CEO.

“We had to rationalise the volumes from certain channels that were contributing to high delinquency, especially in the personal loan portfolio which is the key revenue earner for the business. This led to a shortfall in our ending net receivables (ENR) that ultimately led to a shortfall in revenue [against the plan] which affected the profit, even though we were able to reduce our expenses by 20 per cent, while keeping our risk costs largely flat,” Ghose further explained.

The industry has also seen stagnating demand in general this year, he added, and all players have accordingly faced a challenge in terms of growth, which can be evident in their published financial results.

Taking Czech-backed Home Credit Vietnam for instance, its parent company, Home Credit Group, posted third quarter 2018 results showing the Vietnamese unit saw a slight fall in net loans from €624 million ($710.7 million) in the second quarter to €600 million ($683.4 million) in the third quarter. Its net income, likewise, dropped from €12 million ($13.7 million) in the second quarter to €10 million ($11.4 million) in the third quarter, a decrease in net income compared to 2017. The group’s non-performing loans (NPL) were at 8.9 per cent for the period.

HD Saison, a joint venture between Japan’s Credit Saison and HD Bank Vietnam, was known to contribute approximately ¥600 million ($5.5 million) to its parent’s profit for the first half of the 2018 fiscal year. The group as a whole reported a net income of ¥11.7 billion ($107.5 million), a fall of 48 per cent year-on-year, according to its financial results announced for the second quarter of the fiscal year.

Stagnating demand, meanwhile, was firmly addressed with FE Credit’s own strengths to help turn the situation around in the second half of 2018. With its tremendous product knowledge, deep domain expertise, large customer base, and necessary analytics with data platform to mine customers’ needs or to identify opportunities, together with a very large distribution network that is capable of retailing the firm’s newly-designed products to a large base of customers, the firm has achieved significant results for the whole year. Full-year results for 2018 are expected to be up in the 20-30 per cent range on-year, driven by a strong growth in accounts and ENR balances and a NPL ratio that has been kept steadily at 6 per cent, despite the low credit disbursement in the first half of 2018.

“In 2018, FE Credit’s ability to grow was tested and found to be not only adequate but far superior to the competition in the market. FE Credit was able to mine its own existing database and significantly increase credit disbursals to existing customers with good performance track record, which has given us solid ENR growth and utilised the full growth quota, allowed by the State Bank of Vietnam, for 2018,” said Ghose during the interview.

Sustainable future growth

The consumer finance sector in Vietnam has been on an upswing since 2014, yet aggressive growth will not last forever for all players in the game. As the market leader, FE Credit was able to predict the market slowdown in 2018 and came prepared.

Ghose said that he has personally witnessed a very aggressive growth of consumer finance in recent years, thanks to the combination of a fast growing economy at around 7 per cent a year and a large, young population base whose income has been rising rapidly in recent years.

“Having said that, we do understand that over a period of time when the penetration increases, the growth rate of the industry would obviously have to come down to more moderate and stable levels,” noted Ghose.

An 18-20 per-cent annual growth rate for the next five years or so, as Ghose stressed, is more sensible and achievable, even as the company increases its exposure on its existing customers and gets a reasonable share of new customers who are coming into the market, given the rising income levels and capabilities to serve customers efficiently.

“The target 18-20 per cent that we set for 2019 is very achievable. We are confident of achieving it, because with our large customer base, we have demonstrated our capability to deepen our relationship with customers, especially in recent times, by converting a large number of them to take up appropriately-sized loans that they deserve, and we will continue to do so in the future,” said the CEO.

This strategy, as he went on to say, has not been employed equally well by FE Credit’s competitors, and this has created a competitive edge for the company to take advantage of the market and adjust itself to the changing need of the customers.