Consumer lending is gloomy

Profits of many financial companies have decreased, even causing heavy losses from hundreds of billions to thousands of billions in the first half of the year.

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

SMBC Vietnam Prosperity Bank Finance Company (FE Credit) - the leading financial company in terms of market share, suffered heavy losses in the first 6 months of the year. FE Credit's loss in the first half of this year was nearly VND3,000 billion, equivalent to the loss in the second half of last year. Cumulatively, this financial company has lost about VND6,000 billion in just the last 4 quarters. FE Credit's equity has accordingly decreased by more than 35% from over VND15,900 billion at the end of the second quarter of last year to VND10,250 billion.

FE Credit representative assessed that the consumer finance sector experienced a year of crisis when it had to face many difficulties, such as global economic recession, inflation causing high interest rates. Low-income workers, who are their main customer segment, lost their jobs en masse due to many businesses lacking orders or dissolving.

Despite the common difficulties with the industry, FE Credit was also more heavily affected than the remaining group, stemming from its portfolio focusing on the risky lending segment and its rapid growth strategy from the previous period.

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

In addition to the "big guy" FE Credit, another company that reported a loss in the first half of this year was Shinhan Vietnam Finance Company (Shinhan Finance), a member of Shinhan Card (Korea). In the same period last year, Shinhan Finance had a profit after tax of more than 90 billion VND, but in the first half of this year, this unit lost nearly 250 billion VND.

As for Home Credit Vietnam Finance Company - the company with the second largest market share, its after-tax profit also decreased by more than 80% compared to the same period last year. While in the first 6 months of last year, Home Credit still made a profit of more than a thousand billion VND, in the first half of this year, its profit was only 211 billion VND.

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

The business results of the consumer finance group have gone down in the context of their main customer base falling into difficulties, leading to a rapid increase in bad debt. In general, according to representatives of financial companies, debt collection is extremely difficult because many people have reduced or lost income, combined with a high mentality of "defaulting" on debt.

In addition, not being allowed to use debt collection services, according to representatives of financial companies, puts them in a difficult position. The Investment Law 2020 prohibits debt collection services while the mechanism for filing a lawsuit to collect debt is difficult to implement due to low loan value and complicated and lengthy procedures.

A representative of a finance company said that rising bad debts forced the company to stop making new loans to preserve capital. "In the first three months of the year, we stopped making new loans and only focused on customers with good credit scores," the representative shared.

In addition to the increased risk to customers, people's demand for consumer purchases and installment payments is also lower, affecting the ability to expand the loan portfolio. According to a report by PwC Vietnam, 62% of consumers said they plan to cut down on unnecessary spending, most strongly on luxury goods, travel and electronic devices.

In addition, the cost of capital remains high, which is also one of the reasons for the erosion of profits in this group. Financial companies are not allowed to mobilize capital directly from the population but from credit institutions or businesses. In the past period, they had to bear high costs due to the increase in interest rates since the end of last year.

The difficult period for the consumer finance industry was also predicted by experts and banks. At the "giant" FE Credit, VPBank's leaders expect business activities to be less difficult and gradually stabilize in the last two quarters of 2023. The overall loan growth rate will slow down but will be focused on less risky customers.

Currently, the market has 16 financial companies licensed by the State Bank, with outstanding loans reaching over VND 220,000 billion, accounting for 1.87% of the total outstanding loans of the entire economy and 8.5% of outstanding consumer loans of the entire system, as of the end of 2022. Although accounting for a small proportion of the total outstanding loans, the activities of this group are significant in pushing back the "black credit" problem that has existed for many years.

Quynh Trang

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