Lively evolution continues through foreign consumer finance presence

June 18, 2020 | 08:00
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Despite some legal concerns, international firms are ramping up their presence to reap the benefits from Vietnam’s consumer finance sector.
1495p20 lively evolution continues through foreign consumer finance presence
Lively evolution continues through foreign consumer finance presence. Iillustration photo: Le Toan

Vietnam is already home to 16 consumer finance firms, but it has only in recent years started to reach the stage of economic development where consumer finance is widely used.

Historically, consumer finance has worked well for people who have a stable income but not a lot of savings, and need to buy expensive items such as a vehicle, a computer, or a phone. Nguyen Tu Anh, general director of the Department of General Economics under the Party Central Committee’s Economic Commission, believed the consumer finance market will become stronger here.

“An influx of foreign firms is likely to enter Vietnam, making credit accessible to people and boosting heavy competition,” Anh noted.

According to global ratings agency Fitch Ratings, the operating environment and business models of Vietnam’s consumer finance companies continue to evolve rapidly. Greater exposure to credit cards may bring finance companies into closer competition with banks, which generally enjoy greater benefits of scale and access to lower cost, as well as more stable deposit funding. FE Credit, SHB Finance, HD Saison, and Shinhan Finance are backed by VPBank, SHB, HDBank, and Shinhan Bank – four lenders with sound aid and financial security, which amplify their strengths.

Fitch experts said relationships with foreign shareholders that can transfer know-how or help lower costs will be an advantage, though any imported expertise will still need to be calibrated to local conditions. South Korea’s Shinhan Card, Lotte Card, and Hyundai Card, along with Japan’s Shinsei Bank, have each purchased local finance companies in recent years.

Besides wholly acquiring deals, some local finance companies have found overseas partners to strengthen their operations, such as the marriage between Shinhan Bank and ANZ Vietnam’s retail banking arm, or Shinsei Bank acquiring 49 per cent of MCredit from MBBank.

Weighing up options

In April, SHB signalled its ambition of selling parts of its capital at SHB Finance to a foreign strategic partner. Although the deal value was not disclosed, the parent company is likely to still retain the bulk of the capital in the subsidiary.

FE Credit, the largest firm in the field which accounts for 55 per cent of market share, is also mulling over co-operation with overseas partners. A few months ago, FE Credit was handed approval to switch from a limited liability into a joint-stock company and was given the green light to raise its charter capital, making its way to go public as well as sell stakes to other deep-pocketed foreign investors.

Recently, Japan’s leading retailer AEON also disclosed intentions to jump into Vietnam’s financial market. Masaki Suzuki, chairman of AEON Financial Services, said the group would expand operations here through acquiring either foreign-backed or state-owned financial firms in the country. “Vietnam has witnessed strong growth of the consumer loan and credit market, both in terms of number of financial corporations and market volume,” Lotte Finance general director Kim Jong-Geuk told VIR. “I also see that this industry is contributing well to social development. The growth of consumer finance sector paved the way for more Vietnamese people to access official and legal financial sources.”

Shibata Kenichi, senior expert at Hitachi Asia (Vietnam) Ltd., said the local consumer finance market is witnessing an annual growth of around 30 per cent. “The Vietnamese consumer finance segment echoes some similarities to Japan’s market 30 years ago with its sharp rise in growth year after year,” he said.

Earlier this month, JB Financial Group, one of South Korea’s largest financial conglomerates, successfully acquired a Vietnam-based financial firm.

Ki-Hong Kim, chairperson of JB Financial, highlighted that the company would increase its footprint in Vietnam, Myanmar, and Cambodia for overseas businesses.

“Southeast Asian nations are growing fast, while their banking infrastructure is growing,” Kim said. “South Korea’s banking industry has matured, so we will tap into the overseas markets by consumer finance services.”

Currently, with Europe hit particularly hard by the coronavirus outbreak, some European firms could raise interest in looking for other emerging markets such as Vietnam.


However, there are hurdles to overcome in this regard. Regulations are very strict, particularly where foreign consumer finance companies are involved. Huge capital requirements must be met before a foreign consumer finance company can set up in Vietnam, with the minimum legal capital required for a finance company sitting at VND500 billion ($21.4 million). Frederick Burke, principal at Baker McKenzie said, “From the supply side, we see tech-focused consumer finance companies from Singapore, China, Malaysia, and other countries shifting their attention to expand to Vietnam. But at the moment, the regulatory regime for fintech in Vietnam is still at the seed stage, which creates uncertainty for companies wanting to enter this space.”

On the flip side, consumer finance companies will find it challenging to adapt to the direct disbursement consumer loan caps schedule under Circular No.18/2019/TT-NHNN dated last November.

However, the schedule under Circular 18 is part of the government’s policy and strong commitments towards a cashless society. The restriction on direct disbursement to customer is also a measure to ensure consumer finance companies’ monitoring of the customer actual use of loan against the registered borrowing purpose. Hence, cashless payment is a development trend, not only for consumer finance firms but for the financial systems generally that people should be prepared for.

That said, in order to keep up with the schedule, consumer finance companies should join hands with the Vietnamese government to promote the adoption of cashless transactions, according to Burke.

The State Bank of Vietnam is working on a draft decree on developing legal provisions of a pilot sandbox for fintech, especially in the banking sector.

Vietnamese authorities see fintech as a complement to financial services such as time limitation, brick-and-mortar locations, customer authentication Know-Your-Customer (KYC), complex transaction processes, and long procedures.

According to the draft decree, there are several fintech sectors which could participate in the upcoming sandbox: payment, P2P lending, customer identification, open application programming interface, innovative technologies such as blockchain, credit scoring, capital mobilisation, and more. Subjects eligible for adopting the pilot sandbox programme include credit institutions as defined in the Law No.47/2010/QH12 issued in 2010 on Law on Credit Institutions, fintech companies, and fintech solution providers co-operating with banks.

By Minh Luu

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