• Industry retail loan growth will continue at 18% to 20% annually in 2019 and 2020 with alternative lending and P2P will contribute 7% to 8% to total consumer loans by 2020
• Consumer finance is the key business driver but provisions in some banks have doubled since 2016
• While digital banking adoption is rapidly growing, the biggest challenge faced by financial institutions is the level of interaction with the customers

Banks in Vietnam have realigned their business towards retail financial services like no other country in the Asia Pacific has in the last eight years. The average contribution of retail income to total bank income by the top three retail banks increased from 17% in 2010 to over 50% in 2018. Banks are currently in the process of conceptualising and laying out their digital transformation blueprints.

The retail financial services market for commercial banks is expected to grow to $134 billion by 2020 and alternative financing estimated to grow from $5.7 billion in 2018 and double to $11 billion by 2020.

Consumer Finance

Key retail asset driver and the largest portfolio segment, however, is consumer finance and short term micro loans for purchasing digital devices and household appliances like mobile phone, laptop, washing machines, refrigerators, AC, TV, microwaves, and others. The sector has attracted a spate of foreign players, in particular, Koreans. LOTTE Finance officially launched in June 2018 and Shinhan Card opened Shinhan Vietnam in Ho Chi Minh City as a 100% foreign-owned consumer finance firm after having been allowed to acquire 100% of Prudential Vietnam Finance.

FE Credit, the finance arm of VP Bank is the largest consumer finance company with $2.3 billion in its loan portfolio, contributing 45% to group profit as of end 2018. FE Credit’s key products are cash loans and sales finance (two-wheeler and consumer durables l...

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