As the world moves into a new normal era, Vietnam’s economy has swiftly bounced back, resulting in double-digit growth in consumer credit, particularly in terms of gross lending and outstanding balances. Consumers are increasingly viewing card lending as an optimal way to manage their finances.
Notable aspects of the Consumer Finance (CF) Market in Vietnam
a. Market size and growth
According to General Statistics Office in Vietnam, Vietnam’s gross domestic product advanced 3,32% in first quarter of 2023, softer than a 5,92% rise in fourth quarter of 2022 and pointing to the sixth consecutive period of expansion, flash data showed. Robocash Group’s experts have calculated that Vietnam’s GDP is likely to increase by 0.6% with every 1% increase in lending volume. The data shows a clear correlation between the growth of Vietnam’s GDP and the value of consumer loans.
Considering that nearly 70% of the country’s adult population is underbanked or unbanked, consumer finance plays an immensely significant role in the overall Vietnamese economy. The Vietnamese government regards consumer finance companies that cater to these types of customers as crucial entities, capable of substantially contributing to promoting financial inclusion and accelerating economic growth.
b. Market share
The State Bank of Vietnam (SBV) presently regulates and licenses 16 Fincos in the Vietnamese CF market. However, three major players – FE Credit, Home Credit, and Mcredit – constitute over 80% of the market. Additionally, there is a substantial increase in the interest of foreign investors in Vietnam’s rapidly expanding CF sector, noticeable through various M&A transactions led by Japanese investors including SMBC (JPN), Shinsei Bank (JPN), and Credit Saison (JPN).
Examining Vietnam’s Regulatory Framework for the Consumer Finance Industry
The general regulatory framework for consumer finance in Vietnam includes Law on Credit Institutions No. 47/2010/QH12, Circular No. 39/2016/TT-NHNN, which prescribes lending transactions between credit institutions/foreign bank branches and customers, and Circular No. 43/2016/TT-NHNN, with amendments made in 2019, which governs consumer lending by finance companies. The Law on Credit Institutions permits two types of credit institutions to offer consumer lending services: (1) Vietnam-based commercial banks, foreign bank branches, and foreign-invested banks, and (2) Vietnam-based finance companies. Both banks and finance companies must obtain licenses from the SBV and an enterprise registration certificate from the Department of Planning and Investment. The authorities presently prohibit non-credit institutions, including fintech companies, from providing consumer loans. Finance companies can only grant loans up to 100 million VND, except for car loans secured by collateral.
Expect significant changes in the Consumer Finance industry due to upcoming policy adjustments in the next few years. Most notably, the introduction of Circular No. 17/2021/TT-NHNN regarding bank card operations has officially set up a legal framework for digital issuance of cards, supporting the development of digital banking and the adoption of credit cards. Additionally, the upcoming draft decree that guides mechanisms for fintech operations within the banking sector aims to establish a comprehensive legal framework that fosters innovation, mitigates financial risks, and enhances financial stability.
Major challenges for foreign investor in Consumer Finance Market in Vietnam
One of the most significant challenges for foreign investors in the Consumer Finance Market in Vietnam is the strong presence of well-established local players. Local banks and finance companies have a significant customer base and enjoy established brand recognition, making it difficult for new entrants to penetrate the market. This dominant market position reduces the opportunities available to new players and increases the competition, making it difficult to achieve long-term success.
Another significant challenge faced by foreign investors in Vietnam’s Consumer Finance Market is the regulatory landscape.
While the regulatory framework has been improving in recent years, it still poses a challenge due to its complexity and the need to navigate different laws and regulations. The legal and regulatory framework in Vietnam is not always clear and can be subject to interpretation, making it challenging for foreign investors to comply with all the requirements to conduct business. As a result, many investors may need legal and technical support, which also translates into additional costs and uncertainty.
Cultural differences also present a challenge for foreign investors, hampering their ability to do business effectively.
Understanding the local culture and customs is crucial for building relationships and gaining the trust of potential business partners and clients. The Vietnamese culture places a high value on personal relationships, which individuals usually establish through social interaction and mutual acquaintances. Because of this, foreign investors must devote significant time and resources to building relationships before they can expect to see any significant benefits from their market entry.
Finally, economic risks are another major challenge faced by foreign investors in Vietnam’s Consumer Finance Market.
The potential for non-performing loans is a significant concern, especially when dealing with a market that is still in its early stages of development. Additionally, recent economic uncertainties, such as inflation and currency devaluation, have disrupted the market, underscoring the need for robust risk-management strategies.
The Consumer Finance sector is experiencing a surge in dealmaking activity, with foreign capital driving both direct and indirect acquisitions through regional parent entities. Due to intensifying competition, CF companies may find that mergers and acquisitions are the best way to stay competitive in the upcoming years.
Final thoughts
In conclusion, Vietnam’s Consumer Finance Market presents exciting opportunities for foreign investors, but these opportunities come with significant challenges. Before entering the market, one must understand and address the dominance of local players, regulatory issues, cultural differences, and economic risks. While challenging, investing in Vietnam’s Consumer Finance Market could ultimately lead to substantial returns for foreign investors who can navigate these obstacles successfully.
HMLF is always available to offer assistance in understanding the procedures with authorities.
Harley Miller Law Firm “HMLF”
Head office: 14th floor, HM Town building, 412 Nguyen Thi Minh Khai, Ward 05, District 3, Ho Chi Minh City.
Phone number: +84 937215585
Website: hmlf.vn Email: miller@hmlf.vn
