[Industry report] Consumer Finance in Vietnam FIRST-HALF 2023 REVIEW

Moving into 1H2023, the consumer finance market grapples with persistently subdued demand. The ebb and flow of credit demand are intricately linked to variables like interest rates, individual incomes, and employment levels. With blue-collar workers forming the backbone of FinCos' clientele, the sector's resurgence is poised to mirror the recovery of labor-intensive industries, particularly in manufacturing and exports.

 

Moving into 1H2023, the consumer finance market grapples with persistently subdued demand. The ebb and flow of credit demand are intricately linked to variables like interest rates, individual incomes, and employment levels. With blue-collar workers forming the backbone of FinCos' clientele, the sector's resurgence is poised to mirror the recovery of labor-intensive industries, particularly in manufacturing and exports.

In the face of economic uncertainty, FinCos are steering towards sustainable growth, involving refining loan portfolios, removing non-performing segments, diversifying with revolving loans, and embracing comprehensive digital transformation. This strategic shift signifies a departure from previous aggressive approaches, marking a move towards responsible, enduring expansion.

Loan book growth

In the first half of 2023, most FinCos faced a contraction in credit growth, reflecting the prevalent economic challenges. The significant surge observed in 2022 was largely due to a low base effect, and the figure for 2023 is expected to realign with the current market conditions. These factors, combined, had a notable impact on the credit growth of most FinCos, particularly FE Credit and Home Credit and even smaller players, leading to a change in their market share.

Market share

In 1H2023, the consumer finance landscape underwent a notable shift, marked by a return to more conservative lending practices. This adjustment was a response to prevailing economic uncertainties and a recalibration after the robust growth observed in 2022. While most FinCos adopted a cautious approach to safeguard profitability and manage risk, a select few capitalized on the evolving market dynamics to expand their market share. This period also witnessed a fragmentation of the consumer finance market, with key players like FE Credit experiencing a dip in their market share. This shift has opened up opportunities for other FinCos to proactively compete and claim a larger stake in the market.

Earnings quality and profitability

In 1H2023, FinCos saw a significant drop in their net interest income from the loan portfolio, marking a continuation of the contraction trend since 2019. This decline was mainly driven by a substantial surge in funding costs, particularly in credit activity expenses. The prolonged economic uncertainties and unfavorable business conditions also led to a decrease in the yield on the average loan (YOAL).

Asset quality

In 1H2023, the CF landscape encountered turbulence as borrowers wrestled with repayment hurdles, straining asset quality. The NPL ratio surged in 1H2023, signaling a dip in borrower financial health amid challenging macroeconomic conditions. This downturn was exacerbated by a sustained drop in new orders for five consecutive months starting in January, leading to higher unemployment rates. Moreover, recent scandals involving some FinCos have left borrowers more neglectful in meeting their obligations.

Key Developments in the CF Sector

• Enhanced Digitalization: FinCos are intensifying their investments in digitalization to elevate customer acquisition and experience.
• M&A activities are vibrant again along with the divestment of banks in their consumer finance arms.

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