VietNamNet Bridge – The biggest obstacle for finance institutions to expand consumer finance services is the government’s policy which does not give support to the sector.

Vietnam promising land for consumer finance in 2013

The obstacles

Stox Plus, a financial analysis firm, said that the government now does not support the development of the consumer finance services. It has been pursuing the policy which aims to drive the credit flow to the production sector, while it does not encourage pouring capital in the non-production sector in an effort to tighten credit and congest inflation.

Another big challenge for consumer finance service providers is that in the current conditions, when the national economy has fallen into the recession, people have to fasten their belt and cut down spending. This means that they would reduce the borrowing for monthly spending.

Meanwhile, the infrastructure system needed for the development of consumer finance remains very poor. Vietnam has 11.500 auto telling machines (ATM) throughout the country and 41,500 POS. Vietnamese people still prefer making payment in cash. This is also the most popular payment method in Vietnam, even though Vietnamese people also hold credit cards.

A survey by Stox Plus has found that only five percent of the total transaction value is carried out via POS, ATM and online payment basis.

However, analysts still believe that the number of finance consumers still keeps increasing steadily in Vietnam. To date, the consumer loans used by Vietnamese people remain modest.

The total consumer outstanding loans by June 30, 2012, had reached 4.4 billion dollars, accounting for 3.2 percent of the total outstanding loans in Vietnam. By December 31, 2009, consumer credit had accounted for 7.8 percent of nominal GDP, which was much lower than that in other regional countries, including Indonesia (10 percent), Malaysia 42.5 percent and Thailand (18 percent).

The choices for M&A

Having realized the potential market, foreign finance institutions are considering jumping into the market. There are several ways they can follow to join the game.

First, they would buy consumer finance firms. Prudential finance company, or SGVF, for example are considered the “leading gamers” of the game, which are offering the consumer finance products designed for those who want to buy motorbikes, laptops and household use appliances.

The second way is cooperating with a local bank to gradually penetrate the market.

Third, buying stakes of the bank to become the strategic partner, which allows to take full advantage of the bank’s branches and transaction points to provide consumer finance products.

This way has been followed by Fullerton, a subsidiary of Temasek Holdings (Singapore) and the Mekong Development Bank.

The foreign investors then developed the bank into a retail bank with the focus on the consumers in the Mekong Delta in Vietnam. The services have made Mekong Delta different, change its face and escape the list of the banks subject to compulsory restructuring in 2012-2013.

According to Nguyen Quang Thuan, General Director of Stox Plus, merger and acquisition deals have been covered by the Circular No. 04 dated in 2010 promulgated by the State Bank, which comprises general provisions. It seems that the provisions of the circular only mention the merger and acquisition deals among credit institutions only, while there has been no specific provision for the M&As of finance companies.

Sources said that the State Bank is working on a legal document stipulating five types of M&A, including the M&A between banks, between finance companies, between banks and finance companies, finance leasing companies and between micro finance institutions.

DDDN