A customer study services at finance firm Home Credit in Viet Nam. Finance companies have found it easier to mobilise capital with deposit certificates. — Photo baodautu.vn

HA NOI (Biz Hub) — Finance companies have mobilised capital more effectively after the authorities let them issue deposit certificates, experts told Thoi bao Ngan hang (The Banking Times).

Nguyen Hoang Minh, deputy director of the State Bank of Viet Nam's (SBV's) HCM City branch, said finance companies raised up to VND23 trillion (about US$1 billion) through deposit certificate issuances during the first half of this year.

This was 64 per cent higher than the amount they mobilised last year.

Viet Nam defines finance companies as non-banking credit institutions that use their own equity and mobilise money for lending and investment.

They can provide financial and monetary consulting services, but may neither deal in payment nor accept deposits with terms of less than a year.

On December 31, 2013, the SBV issued Circular No 34/2013/TT-NHNN, allowing non-banking credit institutions to issue valuable papers, including deposit certificates, to mobilise capital.

Organisations and individuals from Viet Nam and abroad can buy the certificates. However, credit institutions and their subsidiary companies, as well as foreign bank branches are not allowed to buy the certificates when they are issued for the first time on the primary market, the circular said.

Finance companies said now they only had to inform the central bank about the volume of certificates after they issued them, enabling the firms to proactively manage time and costs related to capital mobilisation.

This is different from the situation before the circular was issued, when finance companies had to either issue bonds or borrow from banks to have money.

The companies could issue bonds only after receiving the approval of the central bank, after completing certain procedures. They also had to cover significant costs while borrowing capital from foreign banks, which claimed charges for money exchange and exchange rate-related risk prevention charges.

Nguyen Thanh Phuc, director of capital sources at the HCM City-based FE Credit Company, said the firm mobilised more than VND14 trillion (US$622.2 million) by issuing deposit certificates during the first half of this year.

The firm, a subsidiary of the Viet Nam Prosperity Bank, offered certificate buyers interest rates of between 5.5 per cent and 12 per cent per year.

Phuc said these rates were more attractive to customers, compared with interest rates that banks set for deposits with terms of more than a year. Such bank deposit rates now hover at about 6 per cent per year.

Consumer finance

He said the potential growth of consumer finance, broadly known as the financing of goods and services for consumers, was driving more deposits at finance companies.

The red tag advertises consumer finance services at a mobile phone shop. Consumer finance is seeing potential growth. — Photo vov.vn

Economic stability is gathering momentum in Viet Nam, with growing per capita income, and thus increasing purchasing power. More than half of its 94 million people were willing to spend more to improve living standards, Phuc said.

Dam The Thai, deputy general director of consumer finance company HD Saison in HCM City, said his firm also had increasing demand for capital.

HD Saison, initially known as Societe Generale Viet Finance Co Ltd, is under the HCM City Development Bank, with Japanese financial group Credit Saison as a strategic investor. Its deposit certificates have terms of one to three years, with coupon interest rates of between 9 per cent and 10 per cent per year.

"Our company will consider issuing more deposit certificates with more attractive interest rates to lure investors in the future," Thai said.

A meeting held by the Viet Nam Competition Authority under the industry and trade ministry in Hà Nội last week was informed that consumer loans in Việt Nam totalled $10.4 billion, equivalent to 6.6 per cent of the country's gross domestic product, as of August 2015.

The authority said companies providing consumer credit services were seeing rapid growth, while the SBV reportedly said consumer loans grew on average by 20 per cent per year over the last seven years.

Long-term capital

However, finance companies reportedly face difficulties in managing medium- to long-term capital.

SBV Circular No 06/2016/TT-NHNN said from July 1, 2016, non-banking credit institutions were to reduce the ratio of short-term capital used for medium- to long-term lending from 200 per cent to 100 per cent. This ratio must be further lowered to 90 per cent in early 2017, and 80 per cent in 2018.

This means finance companies must try to manage more medium- to long-term capital. Bond and deposit certificate issuances would continue to be effective channels meeting this capital demand of the firms, but demand might exceed supply if all firms just counted on these channels, industry insiders said.

Meanwhile, SBV Circular No 21/2012/TT-NHNN currently allows most non-banking credit institutions to borrow capital from domestic banks with terms of only one year or less. Consumer finance firms may approach local banks for medium-term loans with terms of up to three years.

To supplement medium-term capital, finance companies will have to seek more capital from foreign credit institutions, which offer lower interest rates than that of domestic banks. But with money exchange and exchange rate-related risk prevention charges taken into account, the overall costs for finance companies are likely to increase significantly in this case.

Industry insiders said finance companies backed by parent banks might find it easy to manage medium- to long-term capital, but this was truly a puzzle for independent finance firms. Circular No 21 should be revised in a sense to help firms diversify their capital mobilising channels, they said.

Minh from the SBV's HCM City branch said Circular No 21 limited the terms of local bank loans for finance companies to one year or less, because banking authorities wanted to restrict the risks coming from finance firms under economic groups and corporations. But this virtually causes obstacles for consumer finance firms.

Minh said it was necessary to have separate regulations to manage consumer finance firms and finance companies in other areas. He would ask the SBV to work out measures to ease difficulties for consumer finance firms in seeking medium- to long-term capital, he said. — VNS