According to the credit rating agency, Home Credit’s ratings reflect its market position in Vietnam’s evolving and less-developed consumer-finance segment, which is prone to economic volatility and regulatory change.
The company’s underwriting standards, which are centrally controlled by Czech-based Home Credit Group, have not been tested through the cycle given its short operating history in Vietnam.
The ratings also take into account Home Credit’s better-than-peer asset quality and profitability and its adequate management team, which has a focused market strategy and satisfactory execution record.
Fitch expects Home Credit to operate with an acceptable debt/tangible equity ratio at below 6.0x in the mid-term, supported by a reduced growth target and strong internal capital generation.
The company has managed rapid portfolio growth, with total assets increasing at a compound annual growth rate (CAGR) of 38 per cent during 2015-2018, resulting in a rising debt/tangible equity ratio of 4.0x at end-2018, from 2.8x at end-2015.
The company’s asset quality reflects its target market. Its high credit costs reflect the makeup of Home Credit’s loan portfolio at end-2018, of which 58 per cent was cash loans, 27 per cent consumer durables financing, 14 motorbike financing and 1 per cent credit cards.
Non-performing loans – defined as more than 90 days overdue – were maintained at a manageable 2-3 per cent of total loans in 2016-2018, due to a prudent write-off policy and adequate loan-loss allowance.
The company is wholesale funded, with 55 per cent of total borrowing coming from bank loans and 45 per cent from certificate of deposit.
Funding access is uncertain in light of Vietnam’s less stable funding environment, making Home Credits credit profile sensitive to refinancing risk despite its closely matched assets and liabilities.
The company maintains a moderate level of liquidity reserves against its short-term obligations.
Home Credit started its consumer finance business in 2009 and is Vietnam’s second-largest non-bank consumer-finance company, with consumer-loan market share of 17 per cent conducted by non-bank finance companies in 2018.
