Fiin Ratings impressed by F88's turnaround

Despite facing a downward trend in the consumer finance industry due to shrinking demand and a slow economic recovery, F88 has maintained stability in its customer lending operations and diversified its business activities to ensure its leading position in the alternative lending segment.

In the fourth quarter of 2023, the company returned to profitability while key profit indicators such as net interest margin and return on assets were better maintained compared to the industry average in consumer finance, and the cost-to-income ratio improved. In the first quarter of 2024, F88's loan portfolio grew by 3.9 per cent, while the overall market loan balance declined. Additionally, the company's revenue from interest and loan fees grew by 18.4 per cent, with a quarterly profit of VND31.1 billion ($1.2 million).

F88's capital structure and leverage continue to be a strength. At the end of the first quarter of 2024, the financial leverage ratio of this pawn lending chain was 1.8 times, much lower than the consumer finance industry average of 3.7 times in 2023. Overall, this ratio has been on a downward trend, from 3.9 times in 2022 to 1.7 times in December 2023.

Currently, F88 maintains a policy of 100 per cent provisioning for overdue loans over 90 days and writes them off from its on-balance sheet loan portfolio. Comparatively, other banks and financial institutions typically provision overdue loans over 360 days.

Improvements to its customer credit scoring system to enhance assessment quality and the implementation of appropriate lending policies have also contributed to the company's impressive risk management index. Bad debt handling has positively changed since mid-2023, with the debt recovery rate gradually increasing from the fourth quarter of 2023 and sharply rising in the first quarter of 2024 to 22.6 per cent, compared to the 2023 average of 15.6 per cent.

Before 2023, the company was quite successful in diversifying its capital mobilisation sources, from equity to loans through bond issuance channels, foreign funds, and banks, minimising refinancing risks and practically reducing capital mobilisation costs from 12 per cent per year to 11 per cent per year, contributing to stable liquidity. The cooperation between F88 and CIMB Bank is also continuing to provide a stable source of capital for the company.

According to the latest announcement in mid-June 2024, Fiin Ratings maintained F88's rating at BBB- but has upgraded the outlook to "stable .The main basis for the upgrade is "the company has seen certain recovery in asset quality and business results as well as capital mobilisation capabilities amid the overall downward trend in the consumer finance industry and the alternative lending segment in recent times."

In its report, this credit rating agency repeatedly emphasised the stagnation and slow recovery trend of the alternative lending market and the consumer lending market in general, noting that overall market loan balances decreased by 21.4 per cent in 2023 and continued to show negative growth in the first quarter of 2024.

However, Fiin Ratings did not conclude whether F88's "turnaround" is a sign of an overall market recovery. Nonetheless, they have forecast a potential rating upgrade if F88 continues to effectively respond to competition from other lending companies, further diversify its capital mobilisation and revenue sources, and improve profit margins.

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