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Home / Economy / Banking & Finance
Banks see both potentials, risks in consumer lending
​Thao Le 14:28, 2018/04/19
Big profits gained from consumer lending of some banks are helping the segment attract new entrants, however, some others are still out of this wave or have even withdrawn from the game due to concerns about the risks.
At the recent annual general meeting of shareholders, VPBank general director Nguyen Duc Vinh said that the consumer credit segment was one of the bank’s two main income sources in the past five years. The growth rate of the bank’s FE Credit consumer financial company, which currently accounts for 50 percent of the country’s total market share, was up to 52 percent last year alone.
 
OCB plans to set up a finance company this year
OCB plans to set up a finance company this year
VPBank this year plans a profit target of VND10.8 trillion (US$475.77 million), of which a half will come from the FE Credit company. However, Vinh admitted that his bank must accept higher risks than other banks to meet the target.
Similar to VPBank, many other banks have started to join or are planning to develop consumer finance companies. Military Bank, for example, expects to develop Mcredit brand to become the top five consumer finance companies with a total outstanding loans of VND5.9 trillion and pre-tax profit of VND300 billion in 2018. Mcredit has piloted some appropriate financial products within a year, especially for military personnel and hopes that these products will grow fast in the coming years.
The AGM of Orient Commercial Joint Stock Bank (OCB) has also approved the policy to establish OCB finance company or acquire a finance company with a minimum of 70 percent of its charter capital this year. This finance company will carry out consumer credit, financial leasing, factoring and other activities in accordance with the law.
However, in the current consumer credit fever, some banks such as VIB are still standing out of the game. At the 2018 AGM held recently, Dang Khac Vy, VIB chairman confirmed that the bank still has many better options rather than establishing finance company. 
VIB is currently one of the market leaders in the segments of home loans, car loans, and insurance cross-selling. The bank’s retail segment grew by 83 percent in 2017 and 13 percent in the first quarter of 2018 although it included the Lunar New Year. This segment is even forecast to increase by 100 percent in 2018. These numbers show the huge potential to make profit from this segment without a need for a finance company. Although the interest rates of consumer lending are very high at 3-60 percent per annum, the risks are very high and the profits are often short time only.
Notably, Techcombank recently sold its TechcomFinance. According to the bank, it does not choose a model of high risks and high profits but prefer other segments with lower risks.
According to statistics, the consumer credit of Vietnam surged unexpectedly by up to 60 percent in 2017 and is predicted to rise at an average of 29-30 percent per annum in the next three years. Thus, experts have given warning about the overly fast growth rate of the consumer credit flows, which may create deviations from the original direction. Therefore, the promotion of consumer finance should generate motivation for the aggregate demand of the economy and accelerate domestic production activities.
As over 50 percent of the consumer credit flows into real estate and securities sectors, experts said that it might contribute to the deviations in calculation method and the data announced regarding real estate credit flows. This development will also bring risks when the above assets are mortgaged and banks overestimate the credit rating of borrowers.
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