Consumer finance companies are recovering

DNHN - After a tough year, the consumer finance market is showing strong recovery in the first half of this year, reflecting improved business performance by companies in the sector.

2023 was regarded as one of the most difficult years of the decade for consumer finance companies. The primary customer base, consisting mainly of low- and middle-income earners, was heavily impacted by the effects of the pandemic and unfavorable economic conditions. Outstanding loans of consumer finance companies shrank by more than 9%, accompanied by weak credit demand. Companies also became more cautious in lending, especially amid rising bad debt ratios and widespread defaulting.

Moving into the first half of this year, the consumer finance market has begun to show positive signs. Large finance companies like Home Credit Vietnam reported after-tax profits more than double that of the same period last year, reaching VND 474 billion. EVN Finance also showed signs of recovery, with after-tax profits increasing by 50%, reaching nearly VND 250 billion.

Other companies, though still in the red, have seen significant improvement in their business results. FE Credit, a major player in the consumer lending sector, reduced its losses from nearly VND 3,000 billion to just over VND 700 billion. This shows that the company's restructuring and debt management efforts are paying off.

Similarly, Shinhan Finance Vietnam reported a sharp drop in losses, from VND 246 billion to VND 95 billion in the first six months. Meanwhile, Mirae Asset Finance posted a loss of nearly VND 350 billion, slightly less than the same period last year. Notably, Mcredit was a rare case that saw a decline in profits, from VND 328 billion to VND 43 billion.

According to FiinGroup's assessment, the Vietnamese consumer finance market hit bottom in 2023 and is now gearing up for a new growth cycle. Experts believe that the recovery will become more pronounced in the second half of the year, thanks to positive signals from the macroeconomic environment, including the recovery of manufacturing and export sectors.

In particular, since the beginning of July, the State Bank has issued new regulations aimed at simplifying procedures for small loans under VND 100 million. This is expected to create more favorable conditions for the consumer lending sector, helping to increase access to capital for consumers.

In the long run, FiinGroup believes that the consumer finance market holds significant growth potential. Although the penetration rate remains low compared to other countries in the region, the changing perception of the new generation of consumers, especially Gen Z, will be a driving force for development. This generation views consumer finance products not just as debt but as flexible and modern payment options.

Experts suggest that the consumer finance market will become increasingly fragmented and competitive. Small and medium-sized companies with lean business models have the opportunity to rise, while major players tend to slow down, with some undergoing restructuring and adjusting their business strategies. From a concentrated market, a diverse and highly competitive market will emerge.

However, it is undeniable that finance companies still face many challenges in raising capital and expanding their operations. This is particularly true for entities owned by domestic banks, as they plan to divest from the consumer finance sector to focus on core services.

In this context, the consumer finance market will continue to witness deeper participation from foreign investors. The trend of local banks divesting from their consumer finance subsidiaries will open up opportunities for foreign investors to enter the market, driving growth and innovation in the sector.

Thus, Vietnam's consumer finance market is on a recovery path, with many positive signs from finance companies. Although challenges remain, the long-term growth potential and changing consumer perceptions will serve as a driving force for the sustainable development of this sector in the future. Companies must continue to adjust their business strategies, optimize operations, and effectively capitalize on the opportunities arising from the gradually recovering economic environment.

Phan Chinh