Vietnamese people borrow 15 billion USD for consumption

Vietnam's consumer finance lending scale increased nearly one and a half times to 15.12 billion USD in 2015, according to statistics from StoxPlus, showing that this market is also witnessing fierce competition.

Statistics from the Financial Media Joint Stock Company (StoxPlus) have just released a report showing that the Vietnamese consumer finance market continues to witness the strongest growth in the past 5 years. Outstanding loans increased by 44%, from 10.5 billion USD (in 2014) to 15.12 billion USD at the end of last year. According to the report, this activity accounts for 10.4% of GDP and 6.8% of the total outstanding loans of the economy.

While the number of financial companies has doubled, the number of points of sale is limited, so market members are having to compete more fiercely. Photo: Thanh Lan.

The boom in consumer lending in 2015, according to this unit's analysis, stemmed from major changes in consumer habits and high demand for real estate credit among the middle-income class. Accordingly, the habit of borrowing from relatives, friends or the informal financial market has gradually shifted to borrowing from financial companies.

However, along with the strong increase in scale, competition among members in the consumer finance market is also becoming more and more fierce. First, the number of consumer finance companies has doubled this year as the credit institution system has witnessed many mergers and acquisitions of financial companies. In addition, the bargaining power of buyers is expected to increase as the number of companies doubles while the number of points of sale is limited.

Accordingly, consumer finance companies will increase incentives or commissions for points of sale to gain a position at those points of sale. Mobile World and FPT Shop are typical examples. According to statistics, there are currently at least 4 consumer finance companies including FE Credit, Home Credit, HD Saigon, and ACS operating in these sales systems. Therefore, the profit margins of these companies will decrease.

Furthermore, the sales channels of finance companies are facing new challenges from increasing sales and operating costs from payment and collection companies such as MoMo and Payoo. According to the survey, these companies currently charge a fee of 5% to 8% for each transaction. "This has also led to a decline in the profits of consumer finance companies," the report said.

In addition, financial companies also face challenges from companies that apply advanced technology to the financial services industry (FinTech). Although FinTech companies currently only provide payment software and some limited lending activities, StoxPlus believes that this will become a threat to consumer finance companies.

"By taking advantage of competitive advantages such as dense networks and large customer databases, payment service providers such as MoMo, Payoo or BankPlus... have many incentives to enter the consumer finance market. Therefore, consumer finance companies that do not grasp advanced technology are likely to fall behind in the next few years," the report stated.

According to VNE