Thriving Consumer Lending Market in Vietnam

The consumer lending market in Vietnam, driven by a rise in consumption and favorable demographics, offers huge growth opportunities for investors. Consumer lending grew by 65 percent in 2017, compared to 50.2 percent in 2016. The market is predicted to grow from the current VND 600 trillion (US$26.45 billion) to VND 1 quadrillion (US$44 billion) by 2019.

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The major growth factor has been the rise in household final consumption expenditure, which as a percentage of GDP in 2016 was 64.4 percent, higher than the global average of 58.3 percent and much higher than the average for middle-income countries, at 54.3 percent.

Sector analysis

In 2017, the consumer lending market grew by 65 percent compared to 50.2 percent in 2016, according to the National Financial Supervisory Commission (NFSC). The share of consumer credit in total outstanding loans increased from 12.3 percent in 2016 to 18 percent in 2017. Home loans accounted for the majority at 52.9 percent, while loans for home appliances and vehicles were 15.3 percent and 8.3 percent respectively.

The total consumer credit market share of commercial banks, who have mostly stayed away from consumer finances, increased from 39 percent in 2016 to 45.7 percent in 2017. However, the share of joint stock commercial banks and financial companies decreased from 47 percent in 2016 to 42 percent last year.

The country’s credit growth was around 18.7 to 19.3 percent in 2017, with medium and long-term loans accounting for 53.7 percent of the total lending. As for the major economic sectors, loans for industry, commerce, and services increased by 21.8 percent, while for agriculture, it grew by 18.7 percent. Real estate and construction loans witnessed a drop in 2017.

Major lenders in the Vietnamese market include FE Credit, which has a market share of 48.4 percent, followed by Home Credit, HS Saison, Prudential Finance, at 15.7 percent, 12.3 percent, and 8.1 percent respectively.

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Entry of banks and foreign investors

With the market expected to grow 29 percent annually to VND 1 quadrillion (US$ 44 billion) by 2020, Vietnamese banks are planning to set up consumer finance divisions to increase their market share in the sector.

Orient Commercial Bank is planning to set up a subsidiary with a capital of around VND 500 billion (US$22 million) or acquire an existing finance company in the market. Similarly, the Axis Commercial Bank is also setting up a consumer finance division with a capital of VND 500 billion (US$22 million), while the Southeast Asia Commercial Bank acquired Posts and Telecommunications Finance Company for VND 710 billion (US$31.3 million).

In addition to the Vietnamese banks, foreign investors have also started to invest in the consumer finance market since last year. For example, HDBank sold 49 percent of HDFinance to Japan’s Credit Saison, while Techcombank sold an earlier acquired consumer finance firm to Lotte Card for VND 1.7 trillion (US$ 74.9 million). In January 2018, Korea’s Shinhan Financial Group bought Prudential’s consumer finance unit for US$151 million.

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The consumer finance sector will continue to witness a double-digit growth in the next few years, largely driven by an increase in consumer spending, rise in urbanization, and the strict lending rules of domestic banks. This growth can lead to an increase in domestic consumption, which can have a positive effect on the overall economy. However, the government needs to encourage banks to increase consumer lending, while maintaining tighter controls on consumer finance firms, to reduce systemic risks.

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