Second shift in the system of Vietnamese credit institutions continues to be shaped clearly

24-Dec-2016 Intellasia | Vneconomy | 6:00 AM Print This Post

Late last week, Saigon – Hanoi Joint Stock Commercial Bank (SHB) officially received the license to merge Vinaconex-Viettel Finance Joint Stock Company (VVF). The second shift in the system of Vietnamese credit institutions continues to be shaped clearly.

During 2005-2007, a series of rural banks were converted into urban commercial banks. SHB was present in that transition, and is also the member who has stood firmly and rapidly expanded the scale until now.

SHB was also the first member to participate in the restructuring process of the banking system since 2011 through the merger with Habubank. And with the above license, the bank once again involved in a major transition in the system: financial companies gradually separate from state corporations to return to commercial banks.

Earlier last week, the conversion continued to be more vibrant when Mcredit brand was officially launched as a result from the Military Bank (MB)’s merge with Song Da Finance Joint Stock Company.

*Multidimensional benefits

In 2011, the restructuring plan of commercial bank system was put forward. A small segment of which received little attention i.e. financial companies. In spite of being small, it is associated with large issues and shortcomings.

The total assets of financial companies used to reach 170 trillion dong. The non-performing loan (NPL) ratio in many members used to be very high (30-40 percent), and the loss-making business expanded. On the one hand, they are risks for the system of credit institutions in general. On the other hand, the State’s assets are at risk of losing because they are largely owned by state corporations whose non-core divestment requirement was almost stuck.

The “underground restructuring” strategy was worked out. The State Bank regulated that all commercial banks who wanted to develop consumer finance must carry out through affiliated and specialised finance companies. The switch under this mechanism occurred rapidly over the past three years.

A series of commercial banks have gradually acquired, merged financial companies, converting them into consumer finance companies such as VPBank, Maritime Bank, HDBank, Techcombank, MB and SHB.

The aforementioned switch achieved the targets as well as brought about benefits for all parties.

First, the State Bank restructured these members without touching any budget; after merging into commercial banks, these financial companies have had financial healthilisation, consolidated and “polished” the structure.

Second, the State shareholders, specifically state corporations, were “saved” through this change. The non-core divestment became brighter and the liquidity was better.

Third, commercial banks had a specialised tool to engage and exploit a potential segment – consumer finance.

But, there is a question here: why do banks have to acquire, merge to bear and handle the backlogs of the financial transfer instead of establishing a new institution to be clean and active right from the beginning?

There are two main points revolving around the aforementioned question. Firstly, over the last many years and until now, the State Bank has not granted new licenses to establish commercial banks and finance companies. Secondly, existing financial companies are attractive to invest, not only for domestic banks but also foreign financial institutions.

*Foreign factor

Nguyen Van Le, CEO of SHB said that in about a year of promoting the plan to merge VVF and successfully converting consumer finance company, SHB received the proposal to cooperate and invest from many foreign partners.

The first reason, according to Le, is the new licensing for consumer finance companies in Vietnam is very limited, foreign investors wanting to participate almost have to “shake hand” with existing institutions. The second reason is this is a potential segment that has almost remained open for the past many years.

Some foreign investors are willing to pay triple the price to join. SHB is currently negotiating specifically. It is expected that the transfer plan will bring about large surplus to SHB’s shareholders.

“However, we do not choose partners and investors over the sale price. Our criteria is they must be foreign investors who have strong financial strength and a lot of experience in the field of consumer finance as well as commit for a long-term rather than just paying high price, “making them up” then selling for short-term profits”, Le said.

Of which, criteria associated with foreign partners were given priority: good infrastructure technology transfer for consumer finance companies, risk management support and differentiated product and service development with good competitiveness in the market.

The market currently has seven consumer finance companies. These are strong members who have rapidly established market share. The role of foreign partners has also been apparent such as Japanese partners that HDBank, MB connected in finance companies that have gradually been introduced in recent time.

A common thing is Vietnamese consumer finance companies born from the aforementioned conversion quickly saw the participation of foreign partners. SHB’s CEO said this helps standardise the technology, manage risks and develop products… right at the outset to enter the market more professionally and more certainly.

* The $15 billion piece of cake

Among the reasons, the potential for development of consumer credit in Vietnam is the most crucial boost to have the aforementioned switch. That is a market with the scale amounting to $15 billion and is real but not potential anymore.

Speaking at the launch of the brand earlier last week, Dinh Quang Huy, CEO of Mcredit said Vietnam consumer financial market is very prospective. Particularly, the consumer lending scale of the system of commercial banks and finance companies in 2015 reached $15.1 billion, equal to 7.9 percent of GDP.

Compared to 2014, Vietnam consumer finance market in 2015 attained as much as 44 percent growth. Of which, the group of seven consumer finance companies had the outstanding loans to account for 12 percent of the industry-wide scale, equivalent to 38 trillion dong. Huy also estimates, this growth rate will reach at least 20-30 percent in the following years.

Nguyen Van Le, SHB’s CEO also recognises, with individual customer segment, mostly open, Vietnam consumer finance market is really attractive.

Specifically, Vietnam has the population of over 90 million people, mostly concentrating in rural areas; a large number of customers with an income of about 5-7 million dong/month have not accessed bank lending services; banks mainly focus on large loans such as car and home loans while consumers still hesitate to ask for small loans and are difficult to access requirements for loans that banks set. Consumer finance companies will fill this gap.

That potential has also existed in a number of financial companies who joined in the market over the last time.

Nguyen Duc Vinh, CEO of VPBank said, initially, when entering this segment with FE Credit, VPBank was expected to suffer from loss in the first three years to establish the market share and consolidate operations but only after about two years, FE Credit quickly asserted and led the market, contributing largely to the bank’s profits.

The CEO of VPBank also said this segment has higher risks, depending on the taste of each participating bank. However, understanding the risks to be proactive in the risk management, banks are confident about the effectiveness and the safety of this strategic direction.

SHB CEO Nguyen Van Le also noted the operation of consumer finance companies through the aforementioned change is very different from the previous financial companies.

They are small personal loans with greater convenience and flexibility in the risk control and settlement, unlike large loans and financing for businesses whose risks are also larger for the operation of previous financial companies in general.


Category: Finance, Vietnam

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