The mergers of commercial bank-affiliated financial companies began last year. In 2015, a series of financial companies were set up by or taken over by banks to prepare for the development of consumer credit.
The State Bank of Vietnam (SBV) is collecting opinions for a draft circular on regulations on lending by credit institutions, which specify that banks are not allowed to provide unsecured loans and consumer credits but this business must be handed over to financial companies.
Consumer loans are focused for development by commercial banks in recent years. When the SBV bans commercial banks from providing unsecured loans and consumer loans and allocate this business to financial companies, commercial banks have stepped up the formation of financial companies. The SBV explained that this move will help reduce risks for the banking sector when it does consumer lending. According to some economists, this is also a way for the central bank to restructure weak financial companies and meet the demand for formation of financial companies by foreign financial organisations and domestic commercial banks.
Consumer lending typically carries a high interest rate because there is no security assets and risk is thus higher than ordinary commercial loans. The specialisation of consumer loans will help increase effective in management and control. Therefore, the restructuring of financial companies is a must. This specialisation will help manage risks in a better way and in line with international trends.
The M&As of financial companies are sped up by commercial banks. With this handshake, banks will be able to tap on this potential segment while enhancing risk management. Financial companies affiliated to banks will in return enjoy technology, infrastructure, professional personnel and administration level.
This handshake is not only beneficial for banks but also for financial companies with a turning milestone for development.
The competitiveness of financial companies is quite different from banks. Financial companies find it very hard to mobilise capital and have small market share. So, to survive, they must inevitably find out their directions and relying on banks is deemed to be a right step.
Seeing the message of the central bank, commercial banks immediately take action. Many of financial companies have been established or acquired by banks.
Some banks are completing procedures for establishment or acquisition of financial companies. OCB, Nam A Bank, Sacombank, Techcombank, VIB, SHB and Maritime Bank among others are finalising procedures for the acquisition or establishment of financial companies.
Techcombank took over Vietnam Chemicals Financial Company. HD Bank bought up wholly foreign-owned Viet Financial Company (SGVF) and it also worked with Credit Saison Finance Corporation (Japan) invest in HD Finance and rename it to HD Saison Finance Company. Martitime Bank took over Vinatex Finance Company; VPBank purchased Vinacomin Finance Company. Many banks also asked their shareholders for establishment of financial companies, including BIDV, Sacombank and ACB.
In addition to M&A plans, big commercial banks also plan to set up new finance companies or transform their old units. BIDV submits three options for having a new finance company: Buying an operational one, transforming the current one, and establishing a new one. Apart from BIDV, other big lenders like VietinBank and Vietcombank also have plans to set up financial companies to develop their retail market share.
According to experts, consumer finance is expected to play a central role in Vietnam's transition into a more consumption-dependent economy in the coming years. International experience also shows consumer lending rates offered by financial companies are normally 10 times higher than bank rates but this market is still very developed because customers accept it for its simplicity and affordability for borrowers.
Vietnam's consumer finance sector is growing up year after year, even during the tough time of economy as now. Hence, the growth is even more impressive when the economy is better. Risk management and bad debt control are very important.
According to experts, risk control and management must be a top priority. Financial companies will face subprime lending and credit bubble if they ignore bad debts to run after hit-and-run profits.
Le Minh
Vietnamese
