Unsecured Loan– and Indispensable Trend

In 2007, when all Techcombank’s employees were granted automatic overdraft limit which tripled the monthly income, few of them could imagine that, after 8 years, unsecured loan market would be vibrant and fierce like it is today.

An era of personal unsecured loan

2015 witnessed an intense competition on personal unsecured loan among commercial banks and financial companies. All customer segments were fully exploited, from the highest one (high net worth individuals) to the lowest one which was considered as “unbankable” (i.e. people with an income of less than VND 4 million /month).

For the highest segment, i.e. Private and Priority customers, which have a bank deposit of at least VND1 billion, most banks offer an overdraft limit up to VND 1-2 billion. For the lower segments, overdraft limit depends on monthly income, mostly ranging from 3-6 monthly salary incomes. VPBank’s overdraft limit is the highest with 10 monthly salary income applicable to managers. Despite the fact that the disbursement of unsecured loan was 55% lower than the plan, VPBank determined to focus on unsecured loan in 2016, aiming at quadrupling its unsecured loan disbursement versus the previous year and targeting consumers. These safe segments are mainly acquired by internal banks, such as Techcombank, ACB, VPBank, MSB, and HSB.

Low-income segment has recently become more attractive, drawing special attention of domestic consumer loan companies. With a flexible, fast and simple business model, some financial companies are expanding their market shares at unprecedented pace. In only five years, FE Credit of VPBank has acquired nearly 1.6 million customers and made remarkable contribution to the bank’s profit. The race will become fiercer with the participation of new domestic players such as HDBank, Techcombank and MSB, besides international organizations (e.g. Prudential, Home credit…).

The fiercer the competition is, the more benefits customers will have. Mr. Nhut, a taxi driver of Vinasun in HCMC, said that about 50% of his friends who were also taxi drivers had consumer loan. Because most of them do not have valuable assets, they apply for unsecured loan to buy motorbikes, television or to meet urgent needs. “Although the interest rate is high, it poses less pressure than borrowing from other sources. Moreover, the lending procedure is simple and quick. Hopefully, the lending rate will be reduced in the upcoming time with the participation of more companies” he said.

Ms. Hoa (in Cau Giay district, Hanoi) – a Priority customer of Techcombank, shared that although she was not really happy with the fee of VND150,000/month for overdraft service, “it is very convenient, especially when I am in need of money,” she said.

Unsecured loan for SMEs – who is brave?

While unsecured loan is very popular in retail market, it has just started entering the market for enterprises and is expected to change “the chicken or the egg causality dilemma”.

According to the Institute of Manpower, Banking & Finance’s 2015 report, 70% SMEs cannot access to bank’s loan. It is explainable because micro enterprises (which have less than 10 staffs) account for 70% of SMEs. For this segment, secured lending (secured by houses, cars) is not popular. Thus, unsecured loan is the most reasonable solution. However, are Vietnamese banks brave enough to provide unsecured loans for SMEs?

Looking into the banking market, only two banks, MSB and VPBank, are providing this unsecured loan. Piloting unsecured loan since 2013, MSB selects enterprises with revenue of at least VND20 billion/year (based on tax statement) and offers such diverse unsecured offers as guarantee and LC. Noticeably, despite being the first mover and offering competitive interest rate, MSB is not well-known in this area because it does not focus on micro enterprises, who are in dire need for unsecured loan.

Entering the market later, but VPBank is more ambitious than MSB. In early 2015, VPBank had its first unsecured disbursement for SMEs. In addition to recruiting dedicated employees for unsecured loans, it flexibly approached micro enterprises which have revenue around VND 5 billion/year. In 2016, the bank sharpened its focus on micro enterprise segment by launching more attractive products. Accordingly, micro enterprises can get secured and unsecured loans quickly, in which underwriting process for unsecured loans only takes five hours and does not require minimum revenue.

In a conference in early February, Mr. Vu Tien Loc, Chairman of the Vietnam Chamber of Commerce and Industry (VCCI) suggested banks to boost unsecured loan to help enterprises expand their business.

According to a bank executive, unsecured loan for micro enterprises will not only solve “the chicken or the egg causality dilemma” in accessing capital, but also make a turning point in the context of most banks are struggling with approaching enterprises with collateral. More importantly, banks’ risk appetite is diverse and the question is who is brave?

In 2007, when all Techcombank’s employees were granted automatic overdraft limit which tripled the monthly income, few of them could imagine that, after 8 years, unsecured loan market would be vibrant and fierce like it is today.

An era of personal unsecured loan

2015 witnessed an intense competition on personal unsecured loan among commercial banks and financial companies. All customer segments were fully exploited, from the highest one (high net worth individuals) to the lowest one which was considered as “unbankable” (i.e. people with an income of less than VND 4 million /month).

For the highest segment, i.e. Private and Priority customers, which have a bank deposit of at least VND1 billion, most banks offer an overdraft limit up to VND 1-2 billion. For the lower segments, overdraft limit depends on monthly income, mostly ranging from 3-6 monthly salary incomes. VPBank’s overdraft limit is the highest with 10 monthly salary income applicable to managers. Despite the fact that the disbursement of unsecured loan was 55% lower than the plan, VPBank determined to focus on unsecured loan in 2016, aiming at quadrupling its unsecured loan disbursement versus the previous year and targeting consumers. These safe segments are mainly acquired by internal banks, such as Techcombank, ACB, VPBank, MSB, and HSB.

Low-income segment has recently become more attractive, drawing special attention of domestic consumer loan companies. With a flexible, fast and simple business model, some financial companies are expanding their market shares at unprecedented pace. In only five years, FE Credit of VPBank has acquired nearly 1.6 million customers and made remarkable contribution to the bank’s profit. The race will become fiercer with the participation of new domestic players such as HDBank, Techcombank and MSB, besides international organizations (e.g. Prudential, Home credit…).

The fiercer the competition is, the more benefits customers will have. Mr. Nhut, a taxi driver of Vinasun in HCMC, said that about 50% of his friends who were also taxi drivers had consumer loan. Because most of them do not have valuable assets, they apply for unsecured loan to buy motorbikes, television or to meet urgent needs. “Although the interest rate is high, it poses less pressure than borrowing from other sources. Moreover, the lending procedure is simple and quick. Hopefully, the lending rate will be reduced in the upcoming time with the participation of more companies” he said.

Ms. Hoa (in Cau Giay district, Hanoi) – a Priority customer of Techcombank, shared that although she was not really happy with the fee of VND150,000/month for overdraft service, “it is very convenient, especially when I am in need of money,” she said.

Unsecured loan for SMEs – who is brave?

While unsecured loan is very popular in retail market, it has just started entering the market for enterprises and is expected to change “the chicken or the egg causality dilemma”.

According to the Institute of Manpower, Banking & Finance’s 2015 report, 70% SMEs cannot access to bank’s loan. It is explainable because micro enterprises (which have less than 10 staffs) account for 70% of SMEs. For this segment, secured lending (secured by houses, cars) is not popular. Thus, unsecured loan is the most reasonable solution. However, are Vietnamese banks brave enough to provide unsecured loans for SMEs?

Looking into the banking market, only two banks, MSB and VPBank, are providing this unsecured loan. Piloting unsecured loan since 2013, MSB selects enterprises with revenue of at least VND20 billion/year (based on tax statement) and offers such diverse unsecured offers as guarantee and LC. Noticeably, despite being the first mover and offering competitive interest rate, MSB is not well-known in this area because it does not focus on micro enterprises, who are in dire need for unsecured loan.

Entering the market later, but VPBank is more ambitious than MSB. In early 2015, VPBank had its first unsecured disbursement for SMEs. In addition to recruiting dedicated employees for unsecured loans, it flexibly approached micro enterprises which have revenue around VND 5 billion/year. In 2016, the bank sharpened its focus on micro enterprise segment by launching more attractive products. Accordingly, micro enterprises can get secured and unsecured loans quickly, in which underwriting process for unsecured loans only takes five hours and does not require minimum revenue.

In a conference in early February, Mr. Vu Tien Loc, Chairman of the Vietnam Chamber of Commerce and Industry (VCCI) suggested banks to boost unsecured loan to help enterprises expand their business.

According to a bank executive, unsecured loan for micro enterprises will not only solve “the chicken or the egg causality dilemma” in accessing capital, but also make a turning point in the context of most banks are struggling with approaching enterprises with collateral. More importantly, banks’ risk appetite is diverse and the question is who is brave?