Challenges and opportunities for consumer finance companies

Vietnam's consumer finance market - Difficulties are inevitable

With a population of nearly 100 million and a low proportion of new consumer loans, Vietnam's consumer finance market is considered a land of great potential. However, since the beginning of 2020, this market has faced many difficulties caused by the COVID-19 pandemic. People are increasingly tightening their spending, leading to a decline in aggregate demand.

It can be seen that the Vietnamese consumer finance market has great potential for development, but the industry is facing challenges as credit demand declines, asset quality declines and many customers are unable to repay their debts.

Preliminary statistics for the first 6 months of 2023 show that the after-tax profits of some financial companies have dropped sharply, from 30 - 80%, even up to more than 300% compared to the same period in 2022. Meanwhile, bad debts of 16 consumer finance companies at the end of 2022 increased by more than 23% compared to the previous year.

Challenges but also many opportunities

However, by October 2023, the economy had recorded positive signs. Newly registered FDI reached a record level in the 2020-2023 period of more than 5.5 billion USD, exports were recovering and the number of people with new jobs increased significantly.

Especially for financial companies with a sustainable business foundation, this is a golden opportunity to help businesses quickly transform. The difficulties they have experienced will motivate businesses to continue to adapt and change for the better, from operations, technology to debt collection activities.

For example, at VietCredit, in the third quarter of 2023, the target of Interest income and similar income reached nearly 384 billion VND, down 9.4% compared to the same period in 2022. Meanwhile, interest expenses and similar expenses increased sharply by 14% to 111 billion VND due to the increase in market interest rates.

Faced with difficulties in the consumer finance market and customers' reduced ability to repay debts, VietCredit increased its credit risk provision to VND206.6 billion, an increase of 1.6 times compared to the same period in 2022, resulting in a loss of VND62.4 billion in the third quarter. However, compared to the 2023 semi-annual report (loss of nearly VND74 billion), this result shows positive signs.

In addition, VietCredit said it has proactively reduced operating costs by 13% compared to the same period last year. The company has also been focusing on promoting digital transformation, restructuring its product portfolio, and investing in long-term solutions to anticipate and seize opportunities when the economy recovers.

Commenting on the consumer finance market in the coming time, economic expert, Dr. Dinh The Hien - Director of the Institute of Informatics and Applied Economics - said that the market will continue to purge financial companies, which is also an inevitable requirement after a period of boom in this field. The demand for consumer loans is still very large but requires financial companies to carefully assess and only lend to customers who are able to repay their debts.

FiinGroup's 2023 Consumer Finance Market Report also pointed out that younger consumer finance companies with leaner business models and timely business model transformation will have the opportunity to get ahead, while emphasizing that this is the time when the consumer lending game will change.

Thus, it can be seen that the current difficulties of financial companies or the gloomy business situation are just a test to help the market screen potential businesses with sustainable business models. The key is how businesses overcome difficulties and know how to seize future opportunities. To do this, businesses are always flexible, adaptive, focus on investing in technology, focus on core products, and improve risk management. All for the common goal of bringing the best experiences to customers.

Source