What are the key trends facing the consumer finance sector within Vietnam currently?
|Dr. Gregory Bournet, partner and head of Corporate Finance at PwC Vietnam and Malaysia |
PwC Vietnam’s Doing Business Guide in 2020 showed that the impact of COVID-19 on Vietnam’s economy has been inevitable since it is closely linked with other economies. Yet the economy remains broadly resilient – in the first six months of 2020, Vietnam still recorded a GDP growth of 1.8 per cent, a strong achievement compared to other major economies in the world such as the US, Japan, and the EU.
According to the World Bank’s latest edition of Taking Stock, the Vietnamese economy could expand by around 4.8 per cent in 2021 and converge towards the pre-pandemic GDP growth rate of 6.5-7 per cent from 2022 onwards.
Consumer lending institutions play an important role in the pandemic response to stimulate the increase in domestic aggregate demand through a rise in goods retail and consumption. Despite higher risks than bank loans, the consumer lending market is still attractive to investors thanks to its profitability.
Several banks have launched separate finance companies, such as VP Bank with FE Credit, HDBank with HD Saison, SHB with SHB Finance, and MB with Mcredit. Some of these have surpassed their parent company’s size and consumed a significant position of capital and resources to achieve that level of growth.
Naturally, COVID-19 will have an impact on the quality of the loan assets of consumer finance businesses and the anticipation is an uptick in the non-performing loan balance of most of the institutions. Particularly, consumer finance companies that have sacrificed quality over growth will now feel the pinch more.
The consumer finance market still has significant potential for development in this country. The State Bank of Vietnam lists 16 finance companies that are licensed to provide consumer lending. Their total charter capital is worth more than $948 million as of the end of 2020, in which FE Credit made $318.6 million, SBIC Finance $110.1 million, SHB Finance $43.5 million, and Shinhan Finance $26.7 million.
The regulator has also implemented limits on unsecured consumer-finance personal loans which will pressure some businesses yet also ensure more sustainable growth of the overall market.
How many consumer finance deals have you successfully advised, and what made those deals successful?
There have been several notable deals in the sector in the last few years. We acted as the exclusive financial advisors to Shinhan Card for its full acquisition of the consumer finance business of Prudential Vietnam Finance Co., Ltd. The transaction was run as a highly competitive auction with both local and foreign banks expressing strong interest. We positioned our client as a serious, motivated, and well-prepared buyer since the beginning of the process.
The same PwC team was then retained subsequently to its role as the exclusive financial lead advisors of Shinhan Bank Vietnam Ltd.’s acquisition of the Retail Division of ANZ Bank Vietnam Ltd.
Next, we acted as the exclusive financial advisor to Vietnam’s bank SHB for its full sale of charter capital in SHB Finance to Thailand’s Bank of Ayudhya into two phases.
More recently, we acted as the exclusive financial advisor to Sumitomo Mitsui Financial Group (SMFG) for the acquisition of a 49 per cent equity stake by SMBC Consumer Finance Co., Ltd, a consolidated subsidiary of SMFG in Vietnam’s biggest non-bank lender, FE Credit, from VPBank for a consideration of up to $1.4 billion.
This is the second-largest transaction ever recorded in Vietnam’s merger and acquisition history. On the back of our very strong track record in consumer finance deals and established market knowledge, PwC was able to bring SMFG right into the process.
FE Credit has been courted for a while, but larger transactions need strong commitment and an advisor familiar with not only the general market but also with the specific aspects of a proposed transaction, including the dynamics around other parties’ views on a process, valuation, and ability to complete.
How large is the overseas interest in this industry and which skills could local companies use to attract foreign funds?
The attraction of the Vietnamese consumer finance sector is the underlying growth driver. The trend was for foreign buyers or investors from low-growth countries to have a very strong interest in this segment, and particularly Japanese financial institutions were driving that trend with SMFG, MUFG, Shinsei, Credit Saison, and JACCS, among others, all having a presence. The second group included South Korean banks/institutions with Shinhan and Mirae.
The skills necessary are cultural understanding, persistence, patience, and the ability to anticipate challenges. No transaction is the same and each has its own set of intricacies and challenges. This is related to both technical aspects related to specifics of the target but maybe more so regarding the players.