Finance companies not up to the task

Currently, besides six 100 per cent foreign owned companies operating in the field of consumer credit, Vietnam has 12 state-owned finance companies established in late 1990s. However, the companies, which are the subsidiaries of state groups and commercial banks, have been mainly serving the operation of the parent groups, and are not allowed to provide loans to individuals.

Until June 30, 2012, the bad debt of finance companies made up 12.27 per cent of outstanding loans and 7.2 per cent of the total bad debts in the whole system, according to the National Financial Supervisory Commission.

Vu Hoang Chuong, investment and consultant manager of EVN Finance Company under the Electricity of Finance, said that the model of Vietnamese finance companies was inefficient and need restructuring, or perhaps even removed.  

“Vietnamese finance companies cannot compete with banks and operate in very small market segment. Besides, its capital scale is too small, mostly around hundreds of billions of dong,” said Chuong.

Currently, among 12 Vietnamese finance companies, PetroVietnam Finance (PVFC) with charter capital of  VND6 trillion ($288 million) and EVN Finance (EVFC) with VND2.5 trillion ($128 million) are two biggest companies in term of charter capital, most of the remaining had charter capital of only several hundred of billions of dong, not equivalent with a current medium-sized enterprise.

Recent years also saw inefficient operation of many finance companies. In the first nine months of 2012, PVFC reported the net profit of VND183 billion, down by 41.2 per cent year-on-year. Its bad debt till September 30, 2012 reached up to 4.35 per cent, nearly double that in whole 2011 with 2.3 per cent, according to its financial statement.

Meanwhile, in 2011, the Rubber Finance Company reported losses of VND200 billion ($9.6 million). EVN Finance, after difficulties in business in 2011, planned for modest business results for 2012 with VND2.3 trillion ($110 million) in revenue, down 23 per cent against 2011’s actual figure, while total asset expected to decrease 17 per cent to $722.7 million in 2012.

Dao Van Hung, director of the Academy of Policy and Development under the Ministry of Planning and Investment, said finance companies were now the place for state groups to both invest and mobilise capital for lending mainly to its members under the groups.

“Therefore, the loan quality of these companies was often low with high risks of instability,” said Hung.

Currently, under the government’s direction, state groups and corporations are setting up their restructuring plan under which withdrawal of capitals from their non-core businesses would complete by 2015, and this also puts pressure on financial companies to restructure in order to stay alive and develop.