Mcredit stumbles as rivals surge ahead in consumer finance boom

MB Shinsei Finance or Mcredit, recorded a net profit of VND43 billion ($1.72 million) in the first six months of the year, down 87 per cent year-on-year and achieving less than one-tenth of its annual profit target of VND500 billion ($20 million).

Last year, the company reported a net profit of VND240 billion ($9.6 million).

Mcredit's return on equity (ROE) plunged from 21.92 per cent in the first half of last year to 1.39 per cent in the same period this year.

The company’s debt-to-equity ratio rose from 6.95 times at the end of last year to 8.19 times, with total liabilities amounting to approximately VND24.8 trillion ($992 million).

The capital adequacy ratio (CAR) declined from 14 per cent to 13.35 per cent.

Mcredit’s underwhelming performance contrasts with the strong recovery of other major consumer finance companies.

Strong profits among peers

Home Credit Vietnam, another significant player in the sector, reported a net profit of VND474 billion ($18.96 million) for the first half of this year, up 125 per cent year-on-year.

This boosted its ROE from 3.22 per cent to 6.77 per cent. By the end of Q2 2024, Home Credit’s total assets had increased by 14.3 per cent to over VND28.3 trillion ($1.13 billion), with a CAR of 24.46 per cent.

HD Saison Finance also reported a pre-tax profit of VND601 billion ($24.04 million) for the first half of this year, doubling its result from the same period last year and nearly matching its full-year profit from last year.

Buoyed by these positive outcomes, HD Saison's management expressed confidence in achieving 25 per cent credit growth or surpassing its VND1 trillion ($40 million) pre-tax profit target for this year.

FE Credit, Vietnam’s largest consumer finance company, also showed signs of recovery after a challenging period. The company returned to profitability in Q2 with an estimated profit of VND150 billion ($6 million), following a loss of VND800 billion ($32 million) in Q1 and multi-trillion dong losses in the previous two years.

Mcredit’s disappointing results come as the company undergoes a restructuring of its business model.

At an investor conference held by MB in early August, MB Chairman Luu Trung Thai disclosed that Mcredit's non-performing loan (NPL) ratio stands at around 8 per cent. Mcredit is revamping its debt collection model, working with external partners to enhance debt recovery quality, and focusing on lending to customers with data from its parent bank to better manage risks.

Thai also noted that Mcredit is transitioning from cash loans to data-based and installment loans. While MB, the parent bank, intends to moderately expand Mcredit’s loan portfolio, the potential for credit growth in the consumer finance sector is limited this year.

“Therefore, we are targeting reasonable growth of around 10-15 per cent, alongside strict quality control, to build a foundation for next year,” said Thai.

Vietcap Securities observed that the NPL ratios of consumer finance companies have shown signs of improvement over the past two quarters, driven by robust debt management strategies and enhanced credit assessment processes.

In the long term, Vietcap believes that consumer finance in Vietnam holds significant growth potential due to the country’s favorable demographics and low banking penetration compared to other countries in the region, providing opportunities for consumer finance firms.

Additionally, Circular 12/2024/TT-NHNN, recently issued by the State Bank of Vietnam, is expected to create more favorable conditions for consumer finance companies, particularly in the small loan segment with values not exceeding VND100 million ($4,000).

“Lower interest rates and the economic recovery will help improve customer demand and repayment capacity,” the analysis concluded.