Consumer lending is sluggish.

VnExpress•01/09/2023

Many financial companies experienced a decline in profits, with some even suffering heavy losses ranging from hundreds of billions to thousands of billions of dong in the first half of the year.

Five financial companies have just announced their first-half 2023 business results, presenting a bleak financial picture.

Vietnam Prosperity Bank Finance Company SMBC (FE Credit) - the leading finance company in terms of market share - suffered significant losses in the first six months of the year. FE Credit's losses in the first half of this year reached nearly VND 3,000 billion, equivalent to the losses in the second half of last year. Cumulatively, this finance company has lost approximately VND 6,000 billion in just the last four quarters. Consequently, FE Credit's equity decreased by more than 35%, from over VND 15,900 billion at the end of the second quarter of last year to VND 10,250 billion.

A representative from FE Credit assessed that the consumer finance sector experienced a crisis year, facing a series of difficulties such as the global economic recession and inflation leading to high interest rates. Low- and middle-income workers, their main customer segment, suffered mass job losses due to a shortage of orders or the dissolution of many businesses.

While facing challenges across the industry, FE Credit has been more severely impacted than the rest of the group, stemming from its portfolio's focus on high-risk lending and its rapid growth strategy from the earlier period.

According to Vietcombank Securities Company (VCBS), the rapid expansion in the previous period and the focus on cash loan products have resulted in FE Credit's portfolio risk being higher than the industry average.

Besides the "giant" FE Credit, another company that reported losses in the first half of this year is Shinhan Finance Vietnam, a member of Shinhan Card (Korea). In the same period last year, Shinhan Finance had a profit after tax of over 90 billion VND, but in the first half of this year, the unit lost nearly 250 billion VND.

Meanwhile, Home Credit Vietnam, the second-largest financial company in the market, also recorded a more than 80% decrease in after-tax profit compared to the same period last year. While Home Credit still earned over a trillion VND in profit in the first six months of last year, its profit in the first half of this year was only 211 billion VND.

A sharp decline was also recorded at MB Shinsei Finance Company (Mcredit) - a joint venture between Military Bank (MB) and SBI Shinsei Bank from Japan. Mcredit's after-tax profit decreased by more than 30% compared to the same period, falling to only 328 billion VND.

The business results of consumer finance companies are declining as their main customer base faces difficulties, leading to a rapid increase in bad debts. Generally, according to representatives of finance companies, debt recovery is extremely difficult due to many people experiencing reduced or lost income, coupled with a high rate of defaulting on loans.

Furthermore, according to representatives of financial companies, the inability to use debt collection services puts them in a difficult position. The 2020 Investment Law prohibits debt collection services, while the mechanism for suing to recover debts is impractical due to the low loan amounts and the complex and lengthy procedures.

A representative from a financial company stated that rising bad debts have forced businesses to halt new lending to protect capital. "In the first three months of the year, we stopped granting new loans and focused only on customers with good credit ratings," the representative shared.

Besides the increased risk of customer defaults, consumer demand for purchases and installment payments is also weaker, affecting the ability to expand the loan portfolio. According to a report by PwC Vietnam, 62% of consumers said they plan to cut back on unnecessary spending, most significantly on luxury goods, travel , and electronics.

Furthermore, the cost of capital remains high, which is also one of the reasons eroding profits in this group. Financial companies are not allowed to raise capital directly from the public but instead raise it from credit institutions or businesses, and have had to bear increased costs due to rising interest rates since the end of last year.

The challenging period for the consumer finance industry was predicted by experts and banks beforehand. At the "giant" FE Credit, VPBank's leadership expects business operations to become less difficult and gradually stabilize in the last two quarters of 2023. Loan growth will generally slow down but will be focused on less risky customers.

Currently, the market has 16 finance companies licensed by the State Bank of Vietnam, with outstanding loans exceeding VND 220,000 billion, accounting for 1.87% of the total outstanding loans in the entire economy and 8.5% of the total consumer loan outstanding in the entire system, as of the end of 2022. Although this group does not account for a large proportion of the total outstanding loans, its activities are significant in combating the long-standing problem of illegal lending.

Quynh Trang

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