With consumers willing to borrow and spend, banks and financial companies are battling it out to dominate the potentially lucrative consumer finance market.
Gone are the days when Vietnamese people, especially those from the north, believed that taking out a personal bank loan was something to be avoided. These days the country’s young population and increasing average incomes have paved the way for the “borrow-to-buy” concept to become more popular. “The young are more open-minded about banking services, especially consumer banking,” said Mr Godfrey Swain, Head of Retail Banking and Wealth Management at HSBC Vietnam. “They know how to best use banking services to achieve their life goals, like having a home, studying overseas, and having a car.” This is in stark contrast to the older generation, who have preferred borrowing from relatives or friends and their banking use is limited to traditional banking products like term deposits or personal lending.
Consumer finance services have been available in Vietnam for a decade and so is a relatively young industry that is yet to fill an important niche in society. The market has already experienced something of a boom period, particularly in 2007, with a number of foreign consumer finance companies jumping on board. In recent years, though, with the difficult economic climate, the majority of consumers have decided to focus on essential goods and reducing their spending on non-essentials such as motor cars and travel. Despite this, consumer finance remains a tempting field for banks and financial companies, domestic and foreign alike, who now want to muscle into the market.
It appears that local banks have maintained their leadership in consumer lending thanks to long-established brand names and reputation as well as government support. Typically, these local banks are strong in non-card lending while foreign banks focus on card lending. But with enterprises hesitating to borrow to expand their businesses, banks need to look for other ways to boost their earnings and consumer lending appears to be a good bet. “Consumer lending will be an area to watch for both growth levels and speed,” predicted Mr Kalidas Ghose, Deputy CEO and Head of the Consumer Finance Division at VPBank. “The influence of the difficult economic situation on personal consumption demand is not as great as on other economic sectors. Consumption demand in Vietnam is growing steadily, which helps personal loans at VPBank remain at a high level.”
Meanwhile, a growing number of financial companies have stepped in with smaller financial packages while banks have walked away. Companies like PPF Home Credit Vietnam offers loans as little as VND1 million ($47.61), which no bank in Vietnam would even consider. “These are very small amounts that banks are not much interested in,” said Mr Igor Prerovsky, General Director of PPF Vietnam. “And we concentrate on clients from the lower mass market on low and medium incomes who have difficulty accessing bank loans.”
As potential competitors for banks, financial companies seek out high-potential groups that have remained largely untapped. Vietnam’s rural community, which accounts for 68 per cent of the country’s 90 million people, is enjoying income growth of around 44 per cent and is in the sights of foreign finance companies. Many if not most of the rural community don’t have the money to spend on commodities such as motorbikes, TVs or even mobile phones, making a monthly instalment programme both attractive and feasible. Loans from financial companies would enable them to spread the payments out and make purchases of such items more affordable.
There are impressive developments on offer for financial companies given the banking sector is experiencing a tough time. In five years, PPF Home Credit Vietnam’s network of 800 stores, as at December 2011, had increased by over 375 per cent as at December 2013, to 4,403. Its 400 agencies in operation in December 2011 became 2,000 by December 2013, representing growth of 500 per cent. Meanwhile, HDFinance, formerly known as Société Générale Viet Finance (SGVF), one of the largest foreign-owned consumer finance companies in Vietnam before it was acquired by HDBank in August 2013, has around 1,100 employees with a network stretching to 42 provinces throughout the country. It has already provided consumer finance services to more than 125,000 individual customers through more than 800 service introduction points at motorcycle and electronic vendors.
Of course, banks hold certain advantages that financial companies simply don’t have. An added benefit that an international bank like HSBC can offer is international coverage and recognition, which means Premier Vietnamese customers receive the same level of service and support as customers globally. “For this reason banks have greater advantages than financial companies as they can provide a whole suite of services for their customers and become a trusted financial friend for life with one-stop services,” said Mr Swain.
Whereas banks make use of their wide range of products and services, financial companies rely more on providing a limited range of services. “Our greatest advantage is our focus,” said Mr Prerovsky. “We are fully dedicated to making convenient and customer-friendly financing of motorbikes and consumer durables. We do not do provide any other service, so do not have any internal disputes over resources or priorities as is typical in full service banks.” But this is not to say that financial companies don’t have their own disadvantages. “Commercial banks can raise charter capital for investing back into their consumer financing products, which is something consumer finance companies don’t have,” Mr Prerovsky acknowledged.
A recent trend in the banking and finance industry is for commercial banks to look to acquire finance companies in an attempt to gain special tools to facilitate their business activities. Foreign finance companies are also planning to stake out a presence in Vietnam through merger and acquisition deals or cooperation with existing companies. HDBank is one bank taking part in this new trend, in acquiring SGVF. Another is VPBank, as it has won approval from the central bank to acquire the Vietnam National Coal and Mineral Finance Company Limited (CMF).
The consumer financing market is becoming increasingly competitive, which is good for consumers as banks and financial attempt to outdo each other with the best services and the greatest variety of products. For example, VPBank’s Retail Banking Division, Mr Ghose said, will continue to improve its products and services to deliver comprehensive solutions that meet customer needs and expand and diversify its supply distribution network conveniently and flexibly. To promote personal credit activities in particular, the bank will introduce several new products and services, such as payment solutions in card services, flexible loans with simple procedures for asset purchases, small or retail business loans, convenient banking packages for employees and self-employed individuals, investment products suitable for high-end customers, as well as products for high-income customers, middle-income customers, and working women.
As the first financial institution in Vietnam to shift from a product-focused approach to a customer-centric model, “our Premier Retail Management Systems seek to understand a customer’s ‘personal economy’, which is unique and distinct from others,” said Mr Swain. “This approach is intrinsically different from a product-led approach, which does not strive to make tailor-made solutions for different customers.” Another important competitive advantage of the bank is an ability to leverage international capabilities to develop digital banking solutions to suit the increasing need for fast, convenient, mobile and safe banking services in a more connected world.
PPF Home Credit Vietnam is now focusing more on increasing the productivity of its sales network after building a presence in the market by covering all 63 cities and provinces nationwide. “In 2014, if needed, we will close some points of sale that are not profitable,” said Mr Prerovsky. “We are also looking into new segments, for example furniture.” He also attached great importance to providing people with knowledge about consumer lending. “We are increasing educating the market by giving presentations explaining home credit in supermarkets and popular stores,” he said.
“Banks can offer a wider range of products and tailor-made solutions. This is a distinct advantage when compared to the services offered by financial companies, as the financial needs of a person are not limited to just a credit card or instalment loan but can also include education planning for children, managing and growing their wealth, or simply planning for retirement.”
Mr Godfrey Swain, Head of Retail Banking and Wealth Management, HSBC Vietnam.
“Generally, the consumer financing market is growing but not as fast as in previous years. The biggest challenge is still in educating both customers and retailers about the role of consumer financing and what advantages it represents. I think there is a general belief that retail banking and consumer finance is the same. In reality they represent completely different business models with different target audiences.”
Mr Igor Prerovsky, General Director, PPF Home Credit Vietnam
- consumer finance