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Consumer finance growth cooling down to mitigate risks

Local consumer finance firms have been slowing down development through tightening internal management processes and customer selection, aiming for a more sustainable growth path.

FE Credit is one of the leading players in the consumer finance market
FE Credit is one of the leading players in the consumer finance market

Since the beginning of 2018, SHB Finance and Tin Viet Finance (the successor of Cement Finance JSC) have joined the market, while a slew of foreign investors have been continuously injecting capital into this lucrative market field.

According to industry experts, the Vietnamese consumer financial market is very tempting and there is still great room for development with a high profitability rate.

The pace of growth in this field, however, seems to be slowing down in recent months.

“The total outstanding loans of consumer financial firms come to around VND90 trillion ($3.98 billion) at present, and growth is slowing down,” said Nguyen Duc Kien, deputy chairman of the National Assembly’s Economic Committee.

The financial statements of major financial firms showed that in the previous years financial firms had often managed two-digit growth in the credit segment, however, in the first half of this year this growth only hovered at about 4-5 per cent, even lower than that of commercial banks.

Reduced credit growth has dampened these firms’ profitability. For instance, in the first half of this year FE Credit, a subsidiary dubbed as ‘the gold laying goose’ of parent company VPBank, only contributed 36 per cent of VPBank’s total profit, while it added 50 per cent one year ago. This reduction was due to FE Credit’s modest credit growth of 3 per cent during the period.

Experts have attributed financial firms’ losing reputation to their imposition of overly high interest rates on their loans.

Also, several financial firms were reported to have joined hands with cosmetic firms to swindle customers. In addition, the central bank (SBV) has been repeatedly warning financial firms of incoming inspections due to their continuous incidents.

In response, financial firms have been taking steps to tighten internal management processes and improve their risk management capacity, besides strengthening customer platforms.

“These steps are important, helping firms to develop in a healthy manner and regain customer trust,” said Kien.

Not only financial firms, banks themselves are becoming more cautious withthe consumer finance market segment.

Techcombank has even sold its financial arm to a foreign partner and CEO Nguyen Le Quoc Anh revealed that they will not be running after risk-prone business fields.

With respect to consumer loans, Techcombank only lends to those having mortgages at banks, such as customers who intend to buy houses or cars.

Meanwhile, VPBank CEO Nguyen Duc Vinh said that the bank will restrain FE Crerdit’s growth and reduce its contribution to VPBank’s total consolidated profit to ensure healthy development.

Earlier, experts repeatedly voiced warnings over too high interest rates at financial institutions and warned against efforts to lend out by all means, as loans with overly high interest rates are often the main cause behind bad debts.