Foreign investors expand consumer finance business in Vietnam

Large foreign financial groups have actively penetrated the Vietnamese consumer finance market, which has significantly helped accelerate the digitalisation of the country’s financial services.

United Overseas Bank Limited (UOB) has recently completed the acquisition of Citigroup’s consumer banking business in Vietnam, which includes Citibank’s unsecured and secured lending portfolios, wealth management and retail deposit businesses.

Not only UOB, multinational financial groups from countries in the Asian region are also strongly promoting mergers and acquisitions (M&A) and capital contributions in Vietnamese commercial banks to promote their consumer lending activities.

There has been recent information that Japan’s Sumitomo Mitsui (SMBC) has reached a number of agreements to buy more than 1 billion shares of Vietnam Prosperity Commercial Joint Stock Bank (VPBank), equivalent to 5% of the bank’s shares, reported. Currently, both parties have not yet made official announcement on the transfer, but sources said the value of the deal could reach 1.4 billion USD and could be completed by the end of this month.

In fact, SMBC and VPBank are not unfamiliar parties. From early 2021, through SMBC Consumer Finance, MSBC spent 1.37 billion USD to acquire 49% stake of VPBank’s subsidiary FE Credit. This shows the purchase of more than 1 billion VPB shares is most likely be part of the strategy to boost consumer finance segment that SMBC has built up for months.

In addition to SMBC, other large financial groups, such as MUFG from Japan, Srisawad from Thailand and KB Kookmin Card from the Republic of Korea, are also actively hunting to buy consumer finance units of Vietnamese banks. For example, from August 2021, Saigon Hanoi Commercial Joint Stock Bank (SHB) signed agreements to transfer 100% of the capital at SHB Finance to MUFG’s Krungsri from Thailand. At the end of 2022, the State Bank of Vietnam (SBV) approved the list of SHB’s leaders including members from Krungsri. This shows the transfer of SHB’s capital at SHB Finance to Krungsri is going to the final stage to be completed in 2025.

According to experts, with the active participation of multinational corporations, the Vietnam’s consumer finance market will see a strong breakthrough with diversified products and services and strong development in microfinance digitalisation.

In fact, besides large corporations from Japan, the Republic of Korea and Thailand, large Vietnamese groups and corporations, such as Masan, FPT, Viettel and Bamboo, have also made strong investments in the consumer finance segment. For example, in February, Masan invested 105 million USD in Trust IQ to develop artificial intelligence applications in retail and consumer finance to its customers. Masan has also cooperated with Techcombank to create the WINLife ecosystem to exploit the personal financial needs of customers who are using Masan’s retail and consumer services.

Investment in digitalisation is currently the key for large financial companies to compete and expand their market shares as a large number of customers with consumer finance needs have turned to cashless applications and modern borrowing technologies.

Currently, financial companies investing heavily in digitalisation such as VietCredit and MCredit are having very positive growth rates. In particular, MCredit, with the backing of MB and Shinsei Bank, has applied artificial intelligence and cloud computing applications to serve more than 2 million customers, which has helped MCredit rank third among the group of finance companies with the largest market share in Vietnam.

Meanwhile, despite having a smaller size, VietCredit has also had a remarkable growth rate when it recorded a loan balance of more than 4.4 trillion VND by the end of 2022 and a pre-tax profit growth of 52% over the same period of 2021.

To compete for customers and maintain market share, large financial groups such as FE Credit, Home Credit and HD Saison also have had to make strong investments in developing new digital application platforms. FE Credit has invested in Ubank application to replace FE Credit Mobile to become a major neobank in the region in the next few years. Meanwhile, HDSaison has also invested in a new application on the mobile platform to exploit the group of small traders in traditional markets. HDSaison last year was very successful in adding 1.2 million new customers to develop consumer loans.

According to experts, after welcoming strong investments and cooperation from major financial group in the region, the Vietnam’s consumer finance market is experiencing increasingly fierce competition and M&A deals from multinational corporations targeting the country’s consumer finance segment are forecast to be the leverage to strongly stimulate the wave of digitalisation and microfinance coverage in the country in the coming years.