Vietnam consumer lending companies report heavy losses in H1

Amid the gloomy business picture in the first half of the year, many consumer finance companies and pawnshops in Vietnam have reported heavy losses or plunging profits compared to the same period last year.

In H1, the consumer lending market was dull partly because of economic difficulties, high interest rates, and shrinking public spending on non-essential items such as phones, electronics, and cars. Another reason was that some consumer lending companies and pawnshops started collecting debt in illegal ways, leading to police inspections and affecting the general market.

Notably, pawnshop chain F88 recorded an after-tax loss of VND368 billion ($15.28 million), compared to a profit of VND46 billion ($1.9 million) in the same period last year.

However, as of June 30, its equity stood at VND1.59 trillion ($66 million), more than triple the same period last year and up 86% compared to the beginning of the year. Thanks to that, its debt-to-equity ratio decreased significantly from 4.77 to 1.44, while outstanding bond debt to equity fell from 3.7 to 0.14.

VPBank SMBC Finance Company Limited, formerly known as FE Credit, reported a loss of nearly VND3 trillion ($14.6 million) from a profit of VND144 billion in the same period last year. Its equity plunged from over VND15.9 billion ($660.6 million) to VND10.25 trillion ($425.8 million).

FE Credit was the consumer credit division under VPBank, listed on the Ho Chi Minh Stock Exchange (HoSE) as VPB. In October 2021, VPBank sold 49% of FE Credit's charter capital to SMBC Consumer Finance Co., Ltd (SMBCCF), a wholly-owned subsidiary of Japan's Sumitomo Mitsui Financial Group. It claims on its website to hold the lion’s share of the consumer finance market with 21,000 transaction points and more than 16,000 employees.

Before selling its stake to the Japanese group, FE Credit reported a profit of VND313 billion ($13 milion) in 2021. However, it suffered a loss of VND2.4 billion ($99.7 million) in 2022 and nearly VND3 trillion ($14.6 million) in the first half of this year.

Shinhan Finance, a member of Shinhan Card under South Korea’s Shinhan Financial Group, announced a loss of VND246 billion ($10.22 million) in the first half of this year, marking its worst business result since 2019. In the 2019-2022 period, the company made an average profit of over VND300 billion ($12.47 million) per year, with VND234 billion in 2021.

Meanwhile, Czech Republic-backed consumer finance firm Home Credit Vietnam recorded an H1 profit of VND211 billion ($8.77 million), equal to nearly 18% of the 2022 figure.

Present in Vietnam since 2008, Home Credit has built a network of 9,000 transaction points and has more than 6,000 employees. The firm is mainly engaged in personal installment loans, cash loans, and credit cards.

As of June 30, Home Credit had equity of over VND6.57 trillion ($272.95 million), a slight increase compared to the beginning of the year. Its liabilities decreased significantly from VND25.5 trillion to VND18.2 trillion ($756.13 million), while its outstanding bond balance remained unchanged.

According to Le Xuan Dong, managing director of Market Research & Consulting Services at FiinGroup JSC, the consumer finance market has good growth potential because Vietnam's consumer loan debt accounts for only 27.17% of GDP, very low compared to the average rate of 60-70% in other Asian countries such as China, Japan, Singapore and Thailand.

Besides, Vietnam is also a potential market with a population of 100 million and an average age of 33.7, along with stable economic development and increasing consumption.

However, the country lacks regulations and mechanisms to control lending interest rate ceilings and accompanying fees for informal forms of consumer finance such as pawnshop chains, peer-to-peer and payday loan companies, fintech companies, and lending apps, he noted.

In recent months, economic difficulties and "problems" related to debt collection have held back the consumer loan market, thereby dragging down people's purchasing power, which was already weak due to falling incomes, he said, adding this is clearly shown through the business results of companies that sell tech goods or luxury cars.

To support the market’s growth, the Prime Minister has directed the State Bank of Vietnam to consider reducing interest rates as well as expanding those eligible for consumer loans, and asked banks to offer loans with reasonable interest rates.

Many circulars and resolutions have been issued to remove difficulties for the market, including the SBV’s Circular 06/2023/TT-NHNN dated June 28, 2023 and effective from September 1, or the government’s Resolution 59/NQ-CP on solutions to ease difficulties for customers to get loans for daily life and consumption needs.

“These moves are expected to boost the consumer lending market in the second half of the year,” Dong said.