Consumer Finance Sector: Fragile recovery ahead

In 2024, credit fundamentals for consumer finance firms rebounded from 2023’s trough level, supported by bad debt clean-up efforts and a more stable operating environment— leading to lower non-performing loan (NPL) formation and credit costs. However, VIS Rating expects divergence to emerge as macro risks, including US tariff hikes, cloud the outlook for the next 12-18 months.

Firms focused on lower-risk consumer durables and two-wheeler loans are likely to maintain resilient asset quality and profitability, while those expanding in cash loans and credit cards may underperform. Structural funding and liquidity challenges will persist, with reliance on confidence-sensitive short-term market funds underscoring the critical role of continued shareholder support.

Firms will adopt more conservative business strategies in response to rising asset risks and macro volatility. With high exposure to unsecured loans to underserved, low-income borrowers, the sector has been vulnerable to macroeconomic volatility and borrower fraud over the last 5 years. Potential US tariff hikes could further strain borrower income and debt serviceability. In response, firms such as FE CREDIT, MAFC, and Shinhan Finance are pivoting toward lower-risk segments like consumer durables and two-wheeler loans through partnerships with retailers.

Meanwhile, others like Mcredit are incorporating new borrower data from third-party sources, such as the Ministry of Public Security, to improve customer selection and early fraud detection. Underwriting standards are tightening through shortening loan tenors, reducing ticket sizes, limiting cash loans to new customers (e.g., HCVN), and refining credit card offerings that promote consumption-based usage (e.g., FE CREDIT, Mcredit).

“Looking ahead, credit fundamentals are set to diverge — firms focused on lower-risk segments (e.g., HCVN, HD SAISON) are likely to remain resilient, while those expanding in cash loans and credit cards (e.g., Mcredit, FE CREDIT) face elevated asset risks”, said VIS Rating.

Sector profit will rise modestly, with cash loan-focused firms lagging behind. We expect the sector return on average assets (ROAA) to improve slightly, supported by stable net interest margins (NIM) from high-yield consumer loans. However, in VIS Rating’s view, macroeconomic uncertainty is expected to dampen credit demand, and firms concentrated on cash loans and credit cards—such as Mcredit, FE CREDIT,… —will likely face elevated credit costs due to persistent asset risks. Meanwhile, firms are streamlining operations by digitizing customer acquisition and expanding partnerships with retailers, e-wallets, ecommerce platforms, and telecom providers.

According the VIS Rating, shareholder support is key to manage structural funding and liquidity risks. Liquidity remains a key structural vulnerability for consumer finance companies, due to their reliance on confidence-sensitive market funds for their core lending activities. Those with heavier reliance on short-term funds are more vulnerable to liquidity shocks. To mitigate these risks, firms are increasingly turning to shareholder funding support, while also diversifying funding sources through long-term bond issuance and leveraging parent banks’ deposit networks.

Consumer finance firms are generally rated lower than banks due to their high-risk business models and limited likelihood of government support. Compared with banks, they face higher delinquencies and loss rates, driven by riskier customer profiles and a greater extent of unsecured lending. In contrast, Vietnamese banks generally exhibit stronger standalone credit profiles and a higher probability of state support—reflecting their systemic importance and a robust regulatory framework. Within the consumer finance sector, higher-rated firms typically exhibit sound risk management, resilience through economic cycles, and strong operational support from parent banks.