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MINISTRY OF EDUCATION AND TRAINING THUONGMAI UNIVERSITY - CONSMER CREDIT DEVELOPMENT OF FINANCE COMPANIES UNDER COMMERCIAL BANK IN VIETNAM Major: Commercial business Code: 934.01.21 SUMMARY OF ECONOMIC DOTORAL THESIS Ha Noi, 2020 The thesis was completed at Thuongmai University Supervisors: Supervisor 1: Prof.Doctor Đinh Van Son Supervisor 2: Deputy Prof.Doctor Le Thi Kim Nhung Critical reviewer : -Critical reviewer : Critical reviewer : The thesis will be defended in front of the University-level Thesis Evaluation Council at the Thuongmai University At……….hour………date………month……….year…………… The thesis can be found at: National Library Thuongmai University Libarary LIST OF PUBLICATIONS PUBLISHED RELATED TO THE THESIS To Thanh Huong 2020, Experience in developing consumer credit of some finance companies in the world, Asia Pacific Economic Review, February 2020, pages 107-109 To Thanh Huong, 2020, Current situation of consumer credit development of finance companies under commercial banks in Vietnam, Journal of Economics and Forecasting, No 08 March 2020, pages 37-39 Nguyen Thi Phuong Lien, To Thanh Huong, 2020, Development of consumer credit products of finance companies under commercial banks in Vietnam, Proceedings of national science conferences, Personal finance - Theory and practice in a new context, Science and Technology Publishing House Nguyen Thi Phuong Lien, To Thanh Huong, 2020, Development of consumer credit distribution channels of finance companies under commercial banks in Vietnam, Proceedings of national science conferences, Commercial Journal of Commercial Science, August 2020 HEADING THE URGENCY OF THE SUBJECT Consumer credit for decades has been provided by two main actors in the financial market to customers, including finance companies and commercial banks Although both entities are providing credit, the customer segment has a clear difference, in which commercial banks focus on providing credit for standard customers who meet loan conditions of the bank, while the financial institutions mainly approach segments of customers that are difficult to access loans from commercial banks, also known as subprime customers Thanks to the clear customer classification between finance companies and commercial banks, it has led to differences in business activities of the two lenders and benefits for customers In addition to the benefits of credit for customers, lenders and the economy, excessive credit growth, lack of strategy and uncontrolled safety in the legal framework can cause crises Economic crisis on a national and global scale The clear evidence is that the global economic crisis of 2008-2009 originated from North America originated from rampant under-standard credit development This is also a lesson for emerging markets with a lot of room for developing credit and at risk of hot credit growth, requiring strict control and safe and sustainable credit growth solutions Retail banking activities in Vietnam have been formed and developed strongly along with the development of the commercial banking system Standard consumer credits for individual customers have been widely deployed by commercial banks, becoming a profitable activity for commercial banks in the context of difficult credit growth from enterprises With the structure of the golden population (69% of the population is of working age), the average income and living standards are increasing, the consumption behaviors of the people change in a positive direction, the credit market in Vietnam is growing It has grown rapidly in the past 10 years and is expected to continue to grow in the future, with an average growth rate of about 20% per year until 2025 In fact, Vietnamese commercial banks are having many advantages when participating in the consumer credit market segment and seeking new development opportunities to enhance the competitiveness and position of the market Along with the policy of the Government and the State Bank on strengthening consumer credit activities of domestic financel companies and restricting the license to open new finance companies in Vietnam, many commercial banks are looking taking ownership of a finance companies to deploy credit operations for subordinate customers is a fertile land to maximize the advantages of capital, network, management experience etc and contribute to achieving strategic targets of commercial banks in the period of 2020-2025 Therefore, the period 2017-2019 witnessed a series of mergers between commercial banks and finance companies, 02 finance companies under commercial banks including MCredit and HD Saison officially came into operation In 2017 and 2018, some commercial banks completed the procedures for acquiring financel companies in 2018-2019, such as Southeast Asia Commercial Joint Stock Bank and Tien Phong Commercial Joint Stock Bank At the same time, many other commercial banks are also preparing to submit to the State Bank on the acquisition of finance companies, showing the increasing competition pressure in the consumer credit market In the first phase of credit activity implementation, a number of advantages help finance companies under commercial banks compete with independent finance companies stemming from the support of the parent commercial banks However, the finance companies also face challenging challenges from: (i) Pressure to transform the digital platform business model to the 4.0 trend; (ii) Competition is increasingly fierce in the field of the financel companies with the accession of Fintech companies, especially the form of loan through APP has flourished because many competitors from China and Indonesia have moved to Vietnam after the collapse disruption of the peer lending market; iii) The legal framework is increasingly completed in the direction of strictly controlling the operations of the finance companies and restricting unsecured cash loans according to the schedule; and (iv) Regulations on restricting credit growth of the State Bank for many years Owned by leading domestic commercial banks in Vietnam, the finance companies are expected to actively contribute to the policy of restricting black credit, contributing to lending transactions to people the integration of legal transactions, responsible lending activities with customers and the community, preserving and strengthening the brand reputation of the commercial banks The finance companies need to determine which business model is appropriate, which solutions are needed to exist and develop properly, balancing profit and safety goals, prestige in relation with the general strategy of the parent commercial banks, well implementing the policy of restricting black credit, protecting the brand reputation of the parent commercial banks and its finance companies through the responsible lending activities Stemming from the above reality, the author chooses "Development of consumer credit of finance companies under commercial banks in Vietnam" as his thesis topic OBJECTIVES AND RESEARCH MISSION * Objectives of the study The objective of the thesis is to establish a theoretical framework to analyze and evaluate the current situation of consumer credit development of the finance companies, thereby proposing scientific-based solutions and practicality for developing consumer credit of the finance companies in Vietnam * Research mission - In theory: the thesis clarifies the theory of consumer credit and consumer credit development in the context of international economic integration and increases competition pressure The thesis also focuses on analyzing international experience on consumer credit from which to apply the practical conditions of the financel companies in Vietnam - In practice: On the basis of analyzing and assessing the current situation of consumer credit development of the financel companies in Vietnam in the period of 2014-2019, defining the limitation, the cause of the limitations and shortcomings in consumer credit development, the research shows the opportunities and challenges, thereby proposing orientations and solutions for developing consumer credit of the financel companies til 2025 in accordance with the reality of international economic integration of Vietnam SUBJECTS AND SCOPE OF THE STUDY * Research subjects The object of the thesis research is the development of consumer credit of the finance companies in Vietnam * Research scope - Regarding the research content: The thesis studies the theoretical basis of consumer credit and consumer credit development of the financel companies in Vietnam, assesses the current situation of the financel companies in Vietnam, some solutions for developing the financel companies in Vietnam Regarding the content of the development, the thesis focuses on researching ways to develop consumer credit in quantity (including: products, distribution channels, markets, sales promotion, interest rates), developing consumer credit quality (including risk management model, credit policy and process), other issues studied under the approach are factors affecting the finance companies's consumer credit development - Regarding the research space: the dissertation examines a typical case study of four out of six finance companies belonging to commercial banks in Vietnam, including FE Credit, HD Saison, Mcredit and SHB Finance - Regarding the study time: practical information and data on consumer credit development is collected in the 2014-2019 period, the proposed solutions and recommendations apply for the period from 2020 to 2025 RESEARCH QUESTIONS (1) Characteristics and role of consumer credit of the finance companies? Content, evaluation criteria and factors affecting the development of consumer credit of the finance companies? (2) Can international experiences in consumer credit development be applied to consumer credit development practices of the finance companies in Vietnam? (3) What is the current situation of consumer credit development of the finance companies? What are the successes, limitations and causes of limitations? (4) In the era of Industry 4.0, how the finance companies in Vietnam need to determine how to develop consumer credit? Opportunities and challenges for the finance companies in Vietnam in the digital age? (5) What solutions are needed for the finance companies in Vietnam to overcome challenges and develop consumer credit in the right direction? NEW CONTRIBUTIONS OF THE THESIS (1) In theory: Analyzing and clarifying characteristics of consumer credit of the finance companies in the relationship of interests with parent commercial banks in terms of business strategy, business model, development methods compared to independent finance companies Establishing a theoretical framework for developing consumer credit on two perspectives: quality development method and credit quality management organization, establishing 08 groups of criteria to assess consumer credit development and weak factors Factors affecting consumer credit of the finance companies To sum up and draw five valuable lessons on consumer credit development of the finance companies in Vietnam from the experience of some finance companies in the world (2) Regarding analysis, practical assessment: based on close association with the theoretical framework and reliable database, the author has analyzed and assessed in detail the current situation of consumer credit development of the finance companies in Vietnam during 2014-2019 and obtained research results on consumer credit development as follows: The successes: (i) The share of consumer credit of the finance companies is increasing, (ii) contributing to the income of the finance companies, (iii) raising the position of parent commercial banks and affirming the right direction of the commercial banks when deploying consumer credit model at the finance companies, (iv) Risk management is approaching international practices and credit quality is maintained in a safe and effective manner (v) actively contribute to the implementation of the policy of restricting black credit under the direction of the Government The above successes are achieved by four main reasons: (i) the development strategy of the finance companies is linked to the general development strategy of parent commercial banks; (ii) The finance companies are capable of developing basic consumer credit (iii) the finance companies benefit from parent commercial banks when consumer consumer credit is implemented (iv) consumer credit demand of individual customers grows strongly and (v) a favorable business environment profit Limitations: From secondary information sources and primary data (through sociological survey with 293 customers of the finance companies), the consumer credit activity of the finance companies also have some limitations such as: (i) consumer credit development methods have not kept up with consumer trends in the 4.0 era, (ii) consumer credit development activities of the finance companies are likely to affect the image and some financial indicators of parent commercial banks, (iii) the principle of responsible lending has not been properly considered The main cause of the constraint comes from the finance companies 'internal resources (unstable and unfaithful human resources; service quality does not meet consumers' expectations about the professional and standards aspects of the company employees of the finance companies; after-loan customer service have not met expectations; internal documents on responsible lending and responsible lending action programs have not been prioritized by the finance companies information technology capacity has not yet met the digital business method) and external factors stemming from parent commercial banks, knowledge of borrowers and a number of regulations on consumer credit unclearly (3) Regarding solutions: Based on the development orientation of the finance companies and consumer credit activities of these companies, limitations and causes of restrictions, lessons learned from international experience, the author of the thesis proposed groups of solutions and recommendations to develop consumer credits of the finance companies operating in the market and the finance companies preparing to enter the market in the near future One main solution that the author focuses on analyzing and interpreting including a group of digital shift solutions (products, distribution channels), a group of solutions to improve the quality of consumer credit quality management (complete collection collecting and processing customer data, managing customer data) and a group of solutions to protect the prestige and brand of the finance companies THESIS STRUCTURE In addition to the introduction and conclusion, the list of published studies, the list of references, appendices, and the thesis consists of 04 chapters: Chapter 1: Overview of research situation and research methods Chapter 2: Theoretical and practical basis for developing consumer credit of the finance companies Chapter 3: Current situation of consumer credit development of the finance companies s in Vietnam Chapter 4: Solutions for developing consumer credit by the finance companies in Vietnam CHAPTER 1: OVERVIEW OF RESEARCH SITUATION AND RESEARCH METHODS 1.1 OVERVIEW OF THE STUDY RELATED TO THE THESIS 1.1.1 The study of consumer credit - Author Gottfried Haberler (1942) studied the installment credit in the topic "Consumer Installement Credit and Econimic Fluctuations", dividing installment credit into cash credit and purchase credit Cash credit or direct credit in which the borrower receives cash or transfers to the account from the lender to spend on personal consumption Purchase credit or indirect credit in which the lender will disburse indirectly into the seller's account and the borrower will receive the goods from the seller - According to author Gloria M.Soto (2009) in the study “Study on the application of the annual percentage rate of charge for consumer credit agreements”, there are two basic consumer credits including installment and circulating (revolving) credit The study also points out the characteristics consumer credit products by each type of consumer credit in the market and the risks associated with consumer credit The study has scientific value to refer to the types of consumer credit, consumer credit products, and characteristics of consumer credit when conducting thesis research - Ralph A Young and Associates (2018), the authors point out in the study “Personal Finance Companies and Their Credit Practices” that consumer installment lending activities usually focus on two groups of cash loans and purchase finance loans In addition, the study also shows the characteristics of consumer credit type of finance companies compared to other credit institutions in several aspects: small-value loans, high lending rates compared to commercial banks, customers are mostly individuals and have average income in the society, the content of loans to pay for purchases of goods and services such as furniture, appliances etc 1.1.2 Studies on consumer credit development - Luisa Anderloni (2010), " The Profitability of the Consumer Credit Industry: Evidence from Europe" The article focuses on the profitability of consumer credit industry in Europe Results press strongly that, among the decisive factors at the enterprise level, diversification of products and services in lending to households is the biggest factor affecting the profitability Regarding market-specific factors, the profitability of consumer credit companies is positively affected by the size of the market and is negatively determined by the level of household debt burden - In the study of author Vu Van Thuc (2014) "Developing consumer loans at Agribank " According to the author's study, Agribank's consumer lending activities are not commensurate with the available potentials and competitive advantages Developing consumer loans will help Agribank exploit full potential to expand business, minimize risks and increase profits In the theoretical basis of consumer lending development, the author said that "consumer loan development is understood to increase both in size and quality of loans" - Doctoral thesis of the author Phung Viet Ha (2015) "Developing credit services at finance companies in Vietnam" The thesis has generalised the basic reasoning of the finance companies, credit and credit services of finance companies, develop credit services of finance companies: concepts, classification finance companies, the main activities, credit services, characteristics of finance companies services - Doctoral thesis of the author Nguyen Thi Huong Lan (2015) on "Research organizational model and business operations of finance companies in Vietnam" The thesis has summarized the theoretical basis of finance companies, organizational model and business operations of finance companies, affecting factors and criteria to evaluate the effectiveness of finance companies The study has synthesized experience from the world finance companies such as finance companies of Samsung Group, finance companies GM Acceptance, finance companies Sony International However, the experience does not clarify the organizational model that these finance companies are implementing - PWC (2015), the study "Consumer lending, undertanding the empowered borrower" was conducted with the object of the study that is consumers' expectations for consumer loans and show that the borrower's expectations are shaped by the development of technology Research shows that many competitors are entering the consumer credit market with better technology including mobile apps and personal financial management tools, simplifying the loan process and providing an experience for quick loan that customers want To stay ahead, lenders need to adapt to customer expectations and new technology trends before new lenders appear - PWC (2015), "Getting a bang for your digital buck" That research shows many consumer lending institutions have invested significantly to the transformation initiatives and digital technology - both inside and outside, but very few people have managed to develop sustainable competitive advantage, long-term from these investments The study proposes a digital platform lending strategy to help consumer lending institutions have a successful digital transformation - PWC (2015), in the study "Banking the under-banked: the Growing Demand for near-prime credit" refer to the concept of customer subprime, subprime lending institutions The risk of losing customers to competitors if they not meet customer needs, technology platforms help increase the level of success of the lender - The study of author Nguyen Ba Dung (2017) on "Application of Big Data in analyzing shopping and consumer behaviors of customers in order to promote business activities at Mobifone Telecommunications Corporation " The study has generalized the theoretical basis of Big Data (concept, characteristics, application necessity, benefits and overview of the technical system of Big Data application) and consumer shopping behavior of Big Data Customers as well as Big Data application trends in analyzing customer behavior around the world and Vietnam - Author Bui Manh Cuong (2017) when studying "Credit risk management at Home Credit Vietnam Co., Ltd." has clarified the theoretical basis for credit risk and credit risk management applied from the perspective of finance companies including: concepts, characteristics, risk classification, evaluation indicators, content and meaning of risk management, influencing factors and international practices on risk management Based on the assessment of the current situation of risk management at Home Credit through assessment of credit structure, bad debt situation, causes of risks, risk management content and risk management policies in the period 2014-2016, summarizing the successes and limitations of risk management work at Home Credit - Doctoral thesis of the author Nguyen Thi Minh (2019) "Development of consumer credit products at Vietnam Bank for Agriculture and Rural Development " The thesis has established a system of commentary on consumer credit products development at commercial banks quite fully, in which the author made a scientific thesis about consumer credit products development as “an increase in scale, complete in terms of product quality associated with improving community responsibility for the sustainable development of consumer credit products” However, the study applies to activities consumer credit of commercial banks, the products consumer credit been studied and recommended for individuals to meet the loan conditions of commercial banks, customers who have difficulty accessing consumer credit products of commercial banks are not subjects of the study - Doctoral thesis of the author Phan Thi Hong Thao (2019), "Financial efficiency of the microfinance institutions in Vietnam officially" The thesis general theory of financial efficiency, while building the measurement criteria of financial efficiency, the model factors affecting financial efficiency of microfinance institutions The study has a reference meaning when developing evaluation criteria and factors affecting consumer credit development in the thesis - Doctoral thesis of the author Nguyen Thu Ha (2019), "Improving the efficiency of business operations at the Military Commercial Joint Stock Bank " The thesis synthesizes ideals and business efficiency in commercial banks: the concept, content, effective business operations on the perspective of the commercial banks on the profitability, safety and on society viewpoint of the contribution to the socioeconomic development goals The author of the thesis proposes a system of indicators to evaluate the business performance of commercial banks in terms of safety assurance and to conduct analysis the impact of the 4.0 revolution on efficiency of business operations of commercial banks is quite clear - Doctoral thesis of the author Dr Tran Khanh Duong (2019) "Preventing and limiting credit risk in BIDV" The thesis has built a systematic and updated theoretical framework on credit risk in the context that commercial banks in Vietnam have been completing the credit risk governance framework under Basel II - Doctoral thesis of the author Le Thi Hanh (2019) on "Credit Risk management in Vietcombank according to Basel II standards." In this thesis, the author has codified the theoretical basis of risks, credit risks and credit risk management of commercial banks according to Basel II standards, especially the need to meet Basel II standards of commercial banks 1.1.3 Conclusions drawn from the overview of the research situation From the overview of the research situation shows that, due to differences in topic, context, time, space of research, published research works also have the following limitations and gaps: - There has been no research to develop a theoretical framework about finance companies, consumer credit and consumer credit development of the financial institutions for customer’s substandard, characteristics of consumer credit according to finance companies model, advantages and disadvantages of this model, factors affecting the consumer credit development of dependent finance companies to substandard customers The necessary conditions for finance companies to perform the transformation of a successful digital business model in the industrial 4.0 - The peer-to-peer lending model of the finance companies, the conditions for the finance companies successfully implement the peer-to-peer lending model and achieve the goal of developing safe and sustainable consumer credit have not been studied yet - There has been no in-depth study of consumer credit development of finance companies The dissertation-level studies on the development of consumer credit services of finance companies and other credit institutions in Vietnam for individual customers are relatively few A number of studies on the development of consumer credit of finance companies in Vietnam have been studied a long time ago, so the conclusions may no longer be suitable with current practical conditions Based on the limitations and research gaps, in my thesis, the author focuses on the following issues: Building a theoretical framework on consumer credit and developing consumer credit of finance companies, evaluation criteria and factors affecting to consumer credit development of finance companies for substandard customers Learn experience lessons on the development of consumer credit from finance companies around the world, state management lessons on consumer credit development for Vietnam from the experience of EU countries and Japan Analyze the current situation of the development of consumer credit of finance companies in Vietnam in the period of 2014-2019, draw conclusions about the successes and limitations, the causes of the success and the limitations in the consumer credit development of finance companies in Vietnam Analyze the opportunities and challenges that finance companies have face, forecast the trend and the orientation of consumer credit development of the finance companies in Vietnam in the industrial 4.0 Proposing solutions and recommendations to develop safe and sustainable consumer credit on digital platforms in the industrial 4.0 1.2 Research method of the thesis topic 1.2.1 Data collection methods For the purpose of collecting research information, the author uses the following data collection methods: - Desk study: In order to assess the current situation consumer credit development of finance companies, the author collected and synthesized data in the period of 2014-2018 from professional reports The author also references a number of legal documents, orientations consumer credit development of law agencies related to consumer credit activity In addition, the author also uses information collected from the internet, newspapers, and publications of FE Credit, Mcredit, HD Saison, and SHB Finance to serve the research at the table - Expert method: In order to assess the level of consumer credit development and some factors affecting consumer credit development of the finance companies, the author conducted in-depth interviews with professional staff of finance companies - Methods of sociological investigation: To assess the impact of a number of factors (service quality, customer knowledge ) on the consumer credit development of the finance companies, the author has conducted the survey collected opinions from individual customers who are using consumer credit products of finance companies in large areas such as Ho Chi Minh City and Hanoi To deploy survey individual customers, the author conducted to build a Likert scale Based on the survey results, the author will assess the level of agreement of individual customers on the survey questions the author raises 1.2.2 Methods of aggregating and processing information For secondary information such as financial data of finance companies including consumer credit outstanding loans, profit, bad debt ratio, capital adequacy ratio over years, the author processed the data in the study in the form of tables and performed a comparative analysis of data between years to see the level of credit growth during 2014-2019 For the information collected from the method of expert interviews, sociological surveys, the author analyzes compares and deduces to assess the level of consumer credit development and the factors affecting the consumer credit development of finance companies CHAPTER 2: THEORETICAL AND PRACTICAL BASIS ON CONSUMER CREDIT DEVELOPMENT OF FINANCE COMPANIES UNDER COMMERCIAL BANK 2.1 CONSUMER CREDIT OF FINANCE COMPANIES UNDER COMMERCIAL BANK 2.1.1 The finance companies, classification and key activities 2.1.1.1 The concept of finance companies under the commercial bank Within the scope of this doctoral thesis, the author uses the concept consumer credit finance company in Decree No 16/2019/NĐ-CP as a basis for concepts finance companies under the commercial bank (and then, it will be call “the finance companies”): “The finance companies is a finance company operating in the field of consumption, invested by commercial banks in the form of capital contribution, share purchase in order to gain control of enterprises 2.1.1.2 Classification of the finance companies Based on the legal form, the finance companies are classified as follows: single-member financial limited liability companies, limited liability companies with two or more members, or joint-stock finance companies 2.1.1.3 Key activities of the finance companies The principal activities of the finance companies include issuing certificates of deposits, promissory notes, treasury bills and bonds to raise capital from the organization; borrowing capital from domestic and foreign credit institutions and financial institutions; borrowing from the Central Bank in the form of refinancing; consumer loans; issue a credit card 2.1.2 Consumer credit of the finance companies 2.1.2.1 The concept of Consumer credit Within the scope of this doctoral thesis, the author uses the concept: “Consumer credit of the finance companies is a financial company providing consumer loans and issuing credit cards in Vietnam dong for science and technology in order to meet the capital needs to buy and use goods and services for consumption purposes” as a basis for Study the next content in the thesis 2.1.2.2 Features of consumer credit activities of the finance companies a Characteristics of consumer credit activities of finance companies - Consumer loans are mainly individual customers who are difficult to access loans from commercial banks - Credit extensions are often small compared to consumer credits issued by commercial banks - Credit standards are often lower than commercial bank borrowers - Credit interest rate is usually much higher than that of commercial banks - Traditional distribution channels are different from commercial banks b Features of consumer credit activities of the finance companies The finance companies has all the operational characteristics of the financial institution in general mentioned above and has some specific characteristics that lead to differences in business model, obligations and responsibilities for the parent bank, and with borrowers - Consumer credit activities of the finance companies have a close relationship with the brand reputation of the parent bank - The consumer credit development strategy, guided by the parent bank, helps the financecompany develop long-term instead of short-term benefits - The finance companies have the capacity to organize the development and management of products thanks to the support of their parent banks - Sharing the existing customer set between the parent bank and the financial company - Credit risk management capacity is an advantage of the finance companies that helps control bad debt and ensure operational safety 2.1.3 Consumer credit classification of Finance companies under the commercial bank 2.1.3.1 Based on the method of refund - Installment consumer credit: is a method of lending in which when an individual customer borrows a loan, a financial company and an individual customer determine and agree on the amount of loan interest to be paid and the principal amount divided to repay the loan with many terms within the agreed lending period This method usually applies to loans that are unable to pay off the loan at one time - Non-circulating consumer credit: is a method of lending in which when an individual customer borrows a loan, the financial company and individual customer determine and agree on the interest of the loan to be paid and the principal amount to be paid times only within the agreed loan term This method usually applies to accounts that can fully pay off the loan at one time - Circulating consumer credit (revolving): is a lending method in which the financial company agrees in writing to allow individual customers to use credit cards or checks to make spending or overspending amount of money on individual account's payment account for a certain period of time and limit Only when an individual customer uses a credit card or exceeds the amount of money does an interest and loan balance arise Unlike individual loans or installment loans, individual customers are disbursed multiple times with different spending purposes within the loan limit and repayment within the agreed-upon limited loan period with the finance companies 2.1.3.2 Based on product strategy and consumption purposes - Basic consumer credit product group: Finance companies only provide basic consumer credit products for consumer purposes including cash loans, loans for transportation, and durable goods loans and plastic credit cards 10 in the financial company participating in the credit flow flow is transparent, clear, understanding the method of coordination and fully grasping its roles and responsibilities - Credit policy: In order to ensure that the Consumer Credit operation is implemented according to the risk management model and business strategy from the Board of Members / Board of Directors of The finance companies, directly under The finance companies need to develop and enact credit policies and a series of internal regulations to coordinate and control the activities of consumer credit of The finance companies - Credit process: regulates all principles and workflow of the operational departments of Consumer Finance Companies from the time of approaching loan application of Individual Customers until lending decision, disbursment, debt collection and contract liquidation The credit process is built according to an end-to-end standard having full of automatic control stages to help the the finance companies ensure that there is no fault in the lending process, helping to define functions of the operational departments participating in the credit flow is apparent, explicit, understanding the method of coordination and fully perceiving their roles and responsibilities 2.1.3 Criteria to assess consumer credit development level of the finance company 2.1.3.1 Indicators for development of consumer credit in quantity - Consumer credit products’s annual growth - Consumer credit distribution channels’s annual growth - Customer volume’s annual growth - Consumer credit market’s annual growth - Growth rate of annual consumer credit outstanding - Growth rate of consumer credit market share - Growth rate of profit 2.1.3.2 Indicators for development of consumer credit in quanlity NPL (bad debts) ratio Balance of NPL Consumer Credit year n NPL ratio in year n = x 100% Total Balance of Consumer Credit in year n Minimum Capital Adequacy Ratio Equity CAR = Total assets at risk In addition, the development of the finance companies’ consumer credit is also evaluated through the contribution of companies to the results, position, prestige parent commercial bank, in implementing the goal of limiting black credit in the national socio-economic development strategy etc 2.1.4 Factors affecting the development of the finance companies 2.4.1.1 Factors belong to the finance companies - Development strategy - Organizing product development capacity - Human Resources - Information technology capacity - Responsible lending factor - Service Quality 2.1.4.2 Factors belong to commercial banks owning finance company For the finance companies, factors belonging to parent comercial banks have certain implications for the development of consumer credit The following are factors of a commercial bank that owns a finance company that impacts on the development of consumer credit of the finance companies: Development strategy of commercial banks, prestige and brands of commercial banks 2.1.4.3 Factors belong to borrowers Factors that belong to borrowers include customer needs, ethical risks, customer insights and customer information 2.1.4.4 The elements belong to the business environment - Economic, legal, and political environment - Competitors: the finance companies are under impact of the competitors directly including banks and consumer finance companies in Vietnam, Fintech Company (platform peer lending), other lending institutions are not recognized by law 2.3 INTERNATIONAL EXPERIENCE ON CONSUMER CREDIT DEVELOPMETN AND LESSION LEARNED FOR VIETNAM 2.3.1 International experience on consumer credit development 2.3.1.1 About ways to develop consumer credit 11 - Santander Consumer Finance Company: the leading company was established in 1963, is active in 15 countries in Europe Santander is owned by Banco Santander Bank, one of the largest banks in the world by market capitalization Santander provides a wide range of basic consumer credit products such as unsecured cash loans, installment loans and credit cards Because Santander focuses strongly on installment loan products, the company mainly uses traditional distribution channels to provide services including service introduction places, branches, telesales centers and receiving loan requests via website So far, Santander has been serving 20 million customers with 130,000 service introduction places in cooperation with retail partners in many countries and 15,300 employees - Capital Car Finance: Capital One Group is a US-owned commercial bank, listed on the New York Stock Exchange Ranked by Forbes in 2017, on the activities of consumer credit consolidation, Capital One was ranked second behind American Express among the world’s top 10 largest consumer finance companies according to combined criteria including revenue, profit, asset and market value In 2001, Capital One Group acquired PeopleFirst Finance LLC and changed its name to Capital One Car Finance (hereinafter referred to as Capital One) in 2003 For auto loan segment, Capital One provides installment loan products for buying new cars and used cars or refinancing customers' car loans provided from other financial institutions Capital One implements the Auto Navigator system, which allows potential borrowers to apply for a loan and view a vehicle in the same application on Capital One's website or APP Thus, although Capital One provides consumer CREDIT product which is basically car installment loan, it has applied technology to receive and process documents online, combined with traditional distribution channel dealers - to complete providing loan to customers 2.3.1.2 Development strategy - APLUS FINANCIAL Co., Ltd of Shinsei Bank, Japan: Shinsei Bank is one of Japan's leading financial institutions, formerly The Long-Term Credit Bank of Japan, Ltd owned by Japanese Government In 2000, Shinsei Bank was privatized and sold to an American company and renamed Shinsei Bank Shinsei Bank issued shares to the public in 2014 and collected 230 billion yen Shinsei Bank's operations focus on three main areas of activity including retail banking, wholesale banking and consumer finance Based on the science and technology database that has been used for payments or loans for many years, Shinsei Bank has cross-sold its existing customer base with consumer demand for loans to Aplus via digital platform 2.3.1.3 State management of Consumer Credit development by Consumer Finance Companies - Experience of Japan : Before 2006, the market of consumer credit witnessed the strong growth peaked in 1990 with credit size reached 12.000 billion yen to 14,000 companies operating in the field of lending, interest rates peaked in the cap of 109 , % according to Capital Registered Law By 2007, the Japanese Government decided to increase the penalties for borrowing at high interest rates while increasing requirements for control and complementary properties with consumer finance companies These tight control measures in Japan have led to a negative impact on the domestic consumer credit market As a result, in the period 2007-2009, the number of domestic Consumer Finace Company decreased sharply, many foreign consumer finance companies such as Citi Group, GE, etc leave Japan one by one The market exits of consumer finance companies bring enormous business opportunities for black credit The state could not solve the problems caused to consumers from illegal lending activities, and also faced the problem of unemployment and declining tax revenues when consumer finance companies leave the market - Experiences from countries in Community General Europe: Interest rate restriction is the solution to be recognized and applied in different countries in the EU According to the results of a European Commission survey on interest rate restriction in the EU, there are countries including Greece, Ireland and Malta are still applying interest rate restriction completely, there are 12 countries applying Use interest rate restriction relatively and 13 countries not apply interest rate restrictions Survey on a large scale has been undertaken to assess the impact of interest restriction to the development of consumer credit and obtained the following results: It leads to limited access to consumer credit, the size of consumer credit decreased in countries where the interest rate restriction was applied and fell sharply in the countries where the absolute interest rate was applied, consumer finance companies restricted their operation or gradually exited from the loan market 2.3.2 Lessons learned for Vietnam 2.3.2.1 Lessons for finance companies Firstly, the finance companies need to exploit individual customers’ profiles that are in relationships with parent banks This is the fast and effective solution for the finance companies to introduce and constantly update consumer loan products to customers trading and using services of commercial banks APP mother Customers who are using the APP are also the channels to introduce potential consumer credit products of subsidiary the finance companies when customers know the products and introduce the products to their relatives and friends Secondly, the finance companies should choose the business model with the consumer credit channel distribution accordingly, constantly improve the utilities of the products of consumer credit to maintain existing customers and attract new customers Besides the strategic diversification of consumer 12 credit products, the finance companies should focus on a number of consumer credit products with advantages, creating added value on products such as create a loan and receive online applications, notify loan results of emails, loan queries on mobile applications etc Clarifed product strategy also helps the the finance companies to develop righteous and effective distribution channels, contributing to sustainable of consumer credit growth Thirdly, the finance companies need to build a modern information technology system to provide credit to individuals conveniently and effectively Thereby providing credit products applied new technologies to encourage and attract customers 2.3.2.2 Lesson for state management on consumer credit development Firstly, consumer credit activity should be considered in correlation with consumer credit demands of individual customers, the Government when developing consumer restriction tools should be carefully evaluated to ensure consumer credit limitations not lead to a black credit boom, affecting low-income subjects but in need of consumer loans Secondly, the restriction of consumer credit should be flexibly applied to each of the finance companies which have clear applying conditions The finance companies have financial potential, ability to control risks better and ensure that the targets set by government regulations such as the Capital Adequacy Ratio, bad debt ratio, capital minimum charter etc should be encouraged to grow consumer Credit at a higher rate than those not meet the requirements for credit growth Thus, the finance companies can maximize the role of funding for consumers with low incomes and become a tool of positive black society credit restrictions 13 CHAPTER 3: REAL SITUATION OF CONSUMER CREDIT DEVELOPMENT OF FINANCE COMPANIES UNDER COMMERCIAL BANK IN VIETNAM 3.1 OVERVIEW OF THE FINANCE COMPANIES IN VIETNAM 3.1.1 Establishment and development process of the finance companies in Vietnam The period 2007-2010 is a period with a strong participation in credit operations of a type of non-bank credit institutions as a financial company There were foreign finance companies and domestic finance companies licensed to establish in this period As of December 31, 2019, there are 16 finance companies in Vietnam, including finance companies with 100% foreign capital, finance companies under commercial banks and finance companies under economic groups and other shareholders finance companies under commercial banks including Community One-member Finance Company, Post and Telecommunication Finance Company, Vietnam Fe Credit, HD Saison, and MCredit, SHB Finance 3.1.2 Management and organizational model of finance companies under commercial banks The finance companies all have relatively similar organizational structures, including the Members' Council, the Supervisory Board, the General Director, the Business/business Center Division, Risk Management Division, Internal Auditing Department, Legal Department, Operations Division, Human Resources Division, Financial Accounting Department, Treasury Department, Information Technology Center Depending on the model of the finance companies and the size of personnel in each unit, the names of functional units will be specified in the form of Block or Board or Center 3.2 CURRENT SITUATION OF CONSUMER CREDIT DEVELOPMENT IN VIETNAM 3.2.1 Current situation of implementing consumer credit development methods 3.2.1.1 Actual situation of developing consumer credit products Table 3.1 The development of new consumer credit products by the finance companies Number of consumer credit No 2014 2015 2016 2017 2018 2019 product groups FE Credit 3 4 HD Saison 3 3 3 MCredit N/A N/A N/A 3 SHB Finance N/A N/A N/A N/A 1 Source: Fiingroup In the 2014-2019 period, the finance companies focused on deploying basic consumer credit product groups to meet the consumer loan needs of individual customers FE Credit is the only financial company providing FE Credit Plus + Master Card in the market FE Credit is also a pioneer finance company deploying digital consumer credit products In the period of 2014-2019, HD Saison only focused on deepening customers and expanding lending purposes under 03 basic consumer credit product groups but not deploying credit cards, and digital consumer credit products MCredit and SHB Finance also focus on basic consumer credit products right from the official operation phase and not further development, in which MCredit deploys 03 consumer credit products similar to HD Saison in In the period of 2017-2019, SHB Finance only focused on cash loans in the period of 2018-2019 Thus, consumer credit development through the method of consumer credit products has the differences between the finance companies under the commercial banks in the period of 2014-2019 as follows: FE Credit implements the development of consumer credit by a mixed consumer credit product category including basic consumer credit products and numbers but with a focus on the basic consumer credit product group The remaining finance companies are focusing on developing consumer credit by the group of basic consumer credit products, there has not been a shift to digital consumer credit products 3.2.1.2 Current situation of development of distribution channels Table 3.2 Development of distribution channels during 2014-2019 Number of No 2014 2015 2016 2017 2018 2019 distribution channels FE Credit 4 4 5 HD Saison 4 4 4 MCredit N/A N/A N/A 4 4 SHB Finance N/A N/A N/A N/A 4 Source: Fiingroup In the period 2014-2019, all the finance companies have deployed basic distribution channels including POS, Telesales, DSA, and Partners FE Credit grew one more distribution channel in 2018 thanks to the deployment of loan application and automatic approval on mobile APP In fact, although most of the 14 distribution channels are implemented by the finance companies, the differences between the finance companies are reflected in the number of POS and DSA that the financial firms provide subordinate has grown Developing the number of POS and DSA distribution channels, either qualitatively or quantitatively, has a positive impact on the growth of consumer credit of finance companies In general, in the period of 2014-2019, the finance companies implemented the strategy of developing traditional distribution channels, focusing resources on developing POS / DSA channels and developing diversified distribution channels Other, step by step developing a new distribution channel through the parent bank 3.2.1.3 Market share Table 3.3 Level of market growth geographically during 2014-2019 % Average No SL TT TDTD 2014 2015 2016 2017 2018 2019 growth FE Credit 63 63 63 63 63 63 0% HD Saison 43 51 63 63 63 63 8% MCredit N/A N/A N/A 36 53 63 33% SHB Finance N/A N/A N/A N/A 33 37 22% Source: Fiingroup Geographic market development plays an important role in the development of consumer credit and has been well-aware and strategically covered by finance companies in the short time since its establishment 3.2.1.4 Sales promotion Until the end of 2017, FE Credit and HD Saison focused on promoting and introducing consumer credit products to customers through the POS network and retail partners that have signed cooperation contracts However, with the emergence of partners providing intermediary payment services and online payment platforms and e-wallets, the finance companies are tending to gradually shift marketing activities through platforms linking and reducing targeted marketing campaigns via POS as before According to the results of interviews with professional officials of the finance companies, sales promotion activities were implemented by the finance companies during 2014-2019 including: POS, DSA, Telesales, SMS , magazines, headquarters and affiliates, media, Website, and Mobile APP (FE FE only), other promotion programs Newly joined finance companies such as SHB Finance and MCredit are also implementing these programs 3.2.1.5 Current situation of lending interest rates of finance companies under commercial banks Depending on the policy of each financial company, the lending interest rate is either published according to the basic consumer credit product or the interest rate announced by the consumer consumer credit products Lending interest rates of the finance companies range from 29.99% -64.99% / year Thus, compared with the interest rate for individual customers of some parent commercial banks for the purposes of buying houses and cars with the lending interest rates ranging from 12% -14% / year, the target credit interest rate is Use rate is quite high compared to the lending interest rate of commercial banks Currently, most finance companies have not implemented online lending products, so there is no clear difference in interest rates of traditional lending products and online lending products 3.2.2 The situation of consumer credit quality management of the finance companies in Vietnam 3.2.2.1 Actual situation of credit risk management model Currently in Vietnam, a popular consumer credit risk management model that has been chosen by the finance companies is a risk management model similar to the centralized risk management model of domestic commercial banks, in which the model has a clear separation of risk management functions and business functions The following is a typical consumer credit risk management organization structure of the finance companies built to ensure the quality of consumer credit: Member Council, Risk Management Committee, Board of Directors control, Executive Board, Credit Risk Council, Risk Management Division, Legal Department, Agency or Internal Control Department, Internal Audit Department In terms of operational history and annual financial indicators, FE Credit and HD Saison are currently two finance companies that have implemented consumer credit risk management organization models use professionally and effectively, in accordance with the model and common risk management policies of the parent bank For finance companies in the early stages of business establishment and implementation such as MCredit and SHB Finance, immediately deploy a professional risk management model with full of specialized functional units such as FE Credit and HD Saison is not the best choice However, with the development strategies of SHB Finance and Mcredit, both towards the Top safe and effective consumer finance companies, these finance companies are in the process of completion and standardization of in-depth risk management model in which strong investment in systems and resources for 15 successful implementation of risk management projects is indispensable 3.2.2.2 Actual situation of credit policy, credit process Credit policy For the finance companies, credit policies or credit risk management policies are issued annually by the Board of Members according to the same standards as the parent commercial banks The purpose of issuance is to guide credit operations at finance companies, to agree on basic principles to identify, measure, monitor, control and minimize credit risks for the loan portfolio and each loan, assigning tasks and defining roles and responsibilities of units at the finance companies in credit risk management With an effective safety development strategy, credit policies of the finance companies are also built to ensure that consumer credit development is accompanied by strict control of credit limits for customers Bank, the authorities decide in credit activities and monitor the capital adequacy ratio continuously and promptly with adjustments in the lending scale to ensure the capital adequacy ratio as prescribed by the State Bank Credit processes In general, the consumer credit process of the finance companies is often simpler than the credit process of commercial banks stemming from the nature of the loan and the borrower According to the results of interviews with the experts of the finance companies and information from the websites of the finance companies, the standard credit process of typical finance companies such as FE Credit and HD Saison is applying to customers including steps including: Loan information consultancy - Collecting loan documents - Loan evaluation and approval - Disbursement - Tracking loans and loan recovery With regard to the requirement of compliance with the credit process in the lending process, most of the officers of the finance companies fully comply with the steps of the credit process when conducting consumer credit activities There are still cases when the bank has not fully complied with or implemented the lending step but the behavior with individual customers is still not standard For other complaints that arise from the fact that the consultants at POS not provide sufficient information or misleading information, especially in the case of interest rates, most of the finance companies are encountered 3.2.3 The results of consumer credit development of the finance companies in Vietnam In addition to data on products, distribution channels, markets, sales promotion and lending rates presented in section 3.2.1, the level of consumer credit development of the finance companies is also expressed through the following quantitative indicators: 3.2.3.1 The growth rate of consumer credit outstanding of finance companies under the 2014-2019 period Table 3.4 Size and growth rate of consumer credit outstanding credit in the period of 2014-2019 Calculation unit: VND billion Outstanding consumer No 2014 2015 2016 2017 2018 2019 credit for individuals FE Credit 3.635 20.208 32,105 44.797 49.944 60.594 Growth rate (%) N/A 455,93 58,87 39,53 11,49 21,32 HD Saison 2.329 4.696 8.055 9.449 10.653 12.581 Growth rate (%) N/A 101,63 71,53 17,31 12,74 18,10 MCredit Growth rate (%) SHB Finance Growth rate (%) Total outstanding credit of finance companies N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 1.549 N/A N/A N/A 5.480 253,78 514 N/A 8.500 55,11 3.692 618,29 23.611 44.239 66.354 91.616 105.635 114.000 Source: 2014-2018 (Fiingroup), 2019 (author calculated) In the period 2014-2019, the scale of consumer credit debt in Vietnam has grown strongly with a compound growth rate of 37% / year, of which nearly VND 114,000 billion in 2019 The object of consumer credit is targeted at individual, middle-income and low-income individuals who not have access to bank loans, accounting for 48% of Vietnam's total population Finance companies such as FE Credit and HD Saison have experienced impressive growth in consumer credit balance The above situation shows that in the initial stage of changing the owner to the parent bank with a clear development strategy, the finance companies have quite good resilience and achieved impressive scale of outstanding loans compared to other independence finance companies Thus, the model of commercial banks owning the majority or the whole has contributed significantly to the transformation and dominate the strong consumer credit market of the 16 finance companies in the 3-5 year business cycle head 3.2.3.2 The growth of market share of finance companies is under the 2014-2019 period The finance companies is gradually dominating the consumer credit market share in the Vietnam market in the period of 2014 - 2019, in which FE Credit maintains its leading position in the market and maintained market share, followed by Home Credit and HD Saison With the starting point of market share of 11.3% in 2014, FE Credit has become the largest financial institution in the market in 2016 In the period of 2017-2019, FE Credit’s market share was continuously consolidated near the 50% mark and surpassed milestones in 2019, reaching 53% With a market share of more than half of the consumer credit market, FE Credit is also the company with the largest market share of every consumer credit product being implemented HD Saison, although ranked third in terms of market share in the industry, has a growing gap compared to MCredit due to no improvement in market share over the years The leading position in the market for vehicle loan products belonged to HD Saison with 32% in 2017, having been overtaken by FE Credit in 2018, reaching 22% in 2018 3.2.3.3 The level of profit growth of finance companies in the period of 2014-2019 Table 3.5 Profits and profit growth levels for the period of 2014-2019 Unit: VND billion No Profit after tax 2014 2015 2016 2017 2018 2019 FE Credit 80 975,7 2.001 3.358 3.294 3.590 Growth rate (%) N/A 1119 105,08 67,82 (1,91) 8,99 HD Saison 135 236 353 416 719 831 Growth rate (%) N/A 74,81 49,58 17,85 72,84 15,58 MCredit N/A N/A N/A N/A 256 155.2 Growth rate (%) N/A N/A N/A N/A N/A (39,38) SHB Finance N/A N/A N/A N/A 8,8 153,6 Growth rate (%) N/A N/A N/A N/A N/A 1645 Source: 2014-2018 (Fiingroup), 2019 (author calculated) 3.2.3.4 NPL ratio Table 3.6 NPL ratio in 2014-2019 period Unit: % No NPL ratio 2014 2015 2016 2017 2018 2019 4,05 5,98 FE Credit 4,6 5,18 5,73 6,3 6,21 HD Saison N/A N/A N/A N/A 5,93 7,9 MCredit N/A N/A N/A N/A 2,29 3,52 SHB Finance Source: 2014-2018 (Fiingroup), 2019 (author calculated) 3.2.3.5 Minimum capital adequacy ratio Table 3.7 CAR capital adequacy ratio in the period of 2014-2019 Unit: % No Capital adequacy ratio 2014 2015 2016 2017 2018 2019 13 11 12 13,2 16,1 16,3 FE Credit 15,1 10,2 9,1 12,5 19,7 17,7 HD Saison N/A N/A N/A N/A 13,6 12,0 MCredit N/A N/A N/A N/A 84,7 22,2 SHB Finance Source: 2014-2018 (Fiingroup), 2019 (author calculated) In the period of 2014-2019, the minimum capital adequacy ratio of finance companies is always high compared to commercial banks This shows the safety level of the assets of finance companies in the face of potential risks in business activities, especially in the current uncertain economic conditions 3.3 Assess the situation of consumer credit development of finance companies under commercial banks in Vietnam 3.3.1 Achievements and causes 3.3.1.1 These achievements - The finance companies under commercial banks successfully apply traditional credit development methods suitable to the characteristics of credit market in the period of 2014-2019 - Contribute to the main income of the finance companies - Risk management is gradually approaching international practices; the quality of consumer credit is maintained in the direction of safety and efficiency 17 - Enhancing the position of the parent commercial banks, confirming the right direction of commercial banks when implementing the consumer credit model at the finance companies - Contributing actively in implementing the policy of restricting black credit under the direction of the Government 3.3.1.2 Cause of success - Development strategy of the finance companies is associated with the general development strategy of the parent bank - The finance companies has the capacity to develop basic consumer credit products - The finance companies can benefit from parent banks when implementing consumer credit - Consumer credit demand of individual customers grew strongly - Favorable business environment 3.3.2 Limitations and reasons 3.3.2.1 Limit - The mode of developing consumer credit has not kept up with the consumption trend in the 4.0 era - Development of consumer credit activities of finance companies is likely to affect the image and adversely affect some financial indicators of the parent commercial bank - Principle of responsible lending has not been properly considered 3.3.2.2 Reason a Group of causes from finance companies - Unstable and unfaithful human resources - The quality of service does not meet the expectations of consumers about the standard and professional aspects of their finance companies, post-loan customer service - Internal documents on responsible lending and responsible lending action programs have not been prioritized by their finance companies - Information technology capacity has not yet met the digital business mode b Group of causes from the parent bank According to interviews with managers of the Executive Board of a number of finance companies, the parent bank usually takes about 3-5 years to implement a digital transformation strategy and takes 2-3 years to deploy a new business model Finance companies will benefit from future conversion results but will need a certain roadmap c The cause is from customers Most customers know about consumer credit products of finance companies only after a loan needs arises Clients often not know their ability to borrow with the finance companies leading to the difference in monthly repayments compared to their solvency A lack of understanding of personal financial management risks both the finance companies and the customers themselves Many cases of complaints or risks of information stem from customers' understanding of consumer lending activities d Cause from the legal environment There is no clear law on the responsibility of a finance companies to borrowers in the period of 2014-2019: Until December 31, 2019, Circular 43 stipulates the responsibility of the finance companies for interpreting the contract for Consumer loans to borrowers are still quite general, debt collection principles are quite primitive, not including all the consequences that occurred during the actual implementation of finance companies 18 CHAPTER 4: SOLUTIONS FOR CONSUMER CREDIT DEVELOPMENT OF FINANCE COMPANIES UNDER THE COMMERCIAL BANK IN VIETNAM 4.1 CONSUMER CREDIT DEVELOPMENT ORIENTATION OF THE FINANCE COMPANIES IN VIETNAM 4.1.1 SWOT analysis of the finance companies in consumer credit development in the period of 2020-2025 4.1.1.1 Strength The finance companies have many advantages in developing consumer credit derived from internal factors as follows: Basic consumer credit products are diverse, suitable for many consumer needs of customers; diversified and widespread traditional distribution network; the geographical market has been covered; advantage of shifting to digital business, the risk management system is well-built and in accordance with international practice 4.1.1.2 Weakness In addition to the strengths, the finance companies also have a number of weaknesses affecting consumer credit development as follows: the level of business flexibility is less than that of independent finance companies; Uneven and stable human resources; Taste risks more closely than independent finance companies 4.1.1.3 Opportunity Opportunities to help the finance companies develop consumer credit include: stable political and legal environment; favorable macro environment; people's income is increasing and the population structure is young 4.1.2.4 Challenge The finance companies are faced with the challenges stemming from the SBV's credit growth constraints, the challenge from a sketchy customer information system, as most customers not have a credit history and the challenge comes from electronic finance 4.1.2 Forecast of development trends of the finance companies in Vietnam in the period of 2020-2025 and development orientation of consumer credit of the finance companies The author proposes the general consumer credit development orientation of the finance companies as follows: - Regarding business strategy: Although consumer credit growth is still the priority target of the finance companies in order to motivate the finance companies to achieve financial targets in the short term However, in the long term, the most important goal that the finance companies should aim for is efficiency and sustainability - Regarding business model: continue to exploit an effective traditional business model, gradually shift to a digital business model when having mastered technology and risk management capacity - Regarding consumer credit products: continue to deeply exploit customers with basic consumer credit products with advantages, study and shift to digital consumer credit products - Regarding distribution channel: POS channel is still a traditional distribution channel that helps the finance companies to maintain their brand in the new period but need to reduce the dependence of POS on credit growth Expanding and growing modern distribution channels through accelerating the association with Fintech companies - Regarding the market: focusing on deepening individual customers in areas where finance companies have the strength to exploit, attracting more young customers who love technology via mobile applications to eliminate geographical distance In addition, the finance companies need to develop safe and sustainable consumer credit on the basis of effective risk management, strengthen governance, inspection and control to ensure the safety of consumer credit activities use; strengthening financial capacity to contribute to safe and sustainable consumer credit development; strictly control credit quality, implement solutions to recover and reduce bad debt ratio 4.2 SOLUTIONS TO DEVELOP CONSUMER CREDIT OF THE FINANCE COMPANIES 4.2.1 Digital business transformation solutions 4.2.1.1 Improving the capacity of developing digital consumer credit products The solution of consumer credit products is one of the key solutions that need to be aken into consideration by the finance companies in the development process The product is a profit-making tool for the finance companies; annual product strategy is effective measures to confirm the prestigious of the company in the market, based on that customers perceive the difference between finance companies Suitable product strategy and product development and management capabilities are a prerequisite for expanding and developi ng consumer credit Therefore, the finance companies need to focus on researching solutions for consumer credit products as follows: Improving the organization of developing and managing products 19 The organization of of developing and managing products includes many stages such as: the organizational model of product development, the process of product design and development, training and communicating new products, product performance evaluation in each period The product development organization should be highly specialized and smoothly operated to save time of launching products to the market, help the Executive Board of the Finance Companies to understand the level of product competing capability on the market, help the product to keep high level of customer satisfation The finance companies should improve the organization of product development towards professionalization, specifically as follows: a) Improve the model of product management organization Because main customer of consumer credit is invidual, the product life cycle is usually short and need to continuoustly adjusting according to market demand, and its effectiveness could cover possible risks The product department should be established independently of the Sales Divisions and under the CEO Close attention and direct guidance of the CEO help product to be issued in line with credit policy, business strategy and business reality of the finance companies in each period, contribute to increase total results of credit growth of the finance companies Establishing the Product Council to assist CEO in accelerating product development product and ensuring product quality approval by qualified and specialized approval organization The product design stage deployed by professional groups to ensure the product is highly feasible in information technology, to accelerate the introduction of products to the market b) Principles, methodology of product development and implementation It is necessary to develop and deploy consumer credit products based on the principles of "Responsible lending" in order to provide appropriate products to customers and ensure customer’s interests The finance companies can choose some or all of popular principles of responsible lending such as: fair advertising and marketing, professional distribution channels, lending to customers potential with sufficient information, lenders access reasonable credit documents, not discriminate between different borrowers of the same product, borrower information security, handling complaint, etc The finance companies also need to apply "Lean thinking" into product development, especially digital products Lean thinking focus on Complying time frame, Learn a lot but cost less, Test early and respond Lean thinking combines with the aforementioned product design model will be effective for financial marketing in digital business transformation Complete documents on product development and management organization The finance companies need to build Regulation on product development activities which set out the principles in product development, standardization and unification of how to implement, including new product concept researching, product content design, sales deployment, and product on-going monitoring The finance companies need to develop and complete a product design process to standardize research steps, design product in groups, deploy product to customers The product design process should cover all stages from researching, launching and reviewing product Product strategy The mixed consumer credit product strategy is a suitable choice for the finance companies in the period from 2020 to 2025 In which the deployed product group include the basic credit products and the gradual transition to digital products For basic consumer credit products: the finance companies continue to diversify according to deeper customer classes, in which the customer characteristics of careers need to be focused on: age, gender, living area, etc to design compatible products Continuing to maintain basic consumer credit product groups helps the finance companies to retain customers, develop new customers who not tend to use digital channels and create potential customers to exploit on digital channels For the group of digital consumer products: the transformation from basic products to digital products requires a large invest capital in infrastructure construction but it’ll reduce operating costs afterwards It is necessary for the finance companies successfully built a digital platform to quickly deploy and issue digital products to soon attract customers who prefer technology and online shopping/spending, focus on cash loan products disbursed into electronic wallets For the finance companies which not immediately implement online lending products, it is necessary to take advantage of the digital platform of the parent bank, gradually introduce technology into basic lending products, reduce the initial contact step between clients and credit counselors such as receiving online records Early association with Fintech companies allows the finance companies to soon enter the digital consumer market and make a mark in this market In addition, the finance 20 companies with technological competence can consider M&A to become Fintech Companies to have their own customer database, thereby deploying digital products directly to consumers 4.2.1.2 Developing distribution channel oriented digital business transformation Common solution for the finance companies in 2020-2025 periods The finance companies should focus on fully and diversifying important basic distribution channels successfully implemented in 2014-2019, including POS, DSA, Telesales, strongly deploying the distribution channel through the parent bank, researching and deploying modern distribution channels according to the business strategy and capacity + For POS development: the finance companies need to establish a network of selling points in the first place, quickly expand and diversify directly distribution channels It is necessary to rely on the strengths of the parent bank to focus on developing relationships with partners closely associated with the parent commercial banks such as telecommunication corporations, electronic corporations to increase the power of negotiation and achieve development goals of selling points each period The finance companies should base on financial resources and the support of the parent bank to reasonability distribute in building their distribution network in each stage of development, avoiding overheating development to ensure the quality of the company's operations + For the distribution channel through the parent banks: the parent banks have a large network of branches and transaction offices nationwide, having large amount customers with transaction relations The finance companies can take full advantage of the network of available transaction points of the parent commercial bank to promote and sell their consumer credit products to customers of banks such as: Payroll customers of banks with good credit score need to borrow unsecured cash loans with small amount but not have bank loan products; Current account customers of banks didn’t paid wage via bank and aren’t eligible to borrow at banks but have demand for consumer loans; Customer group is not eligible for commercial banks, but they are currently working in enterprises that have close relationships with commercial banks The method of distribution via a parent bank may include the following two methods: i) Traditional delivery method: Financial subsidiaries are directly located at all branches / transaction offices of the parent bank nationwide ii) Method of online distribution: the finance companies are sold through APP of the parent bank The exploitation of the distribution channel through the parent commercial bank is the premise to help the finance companies can quickly develop the network and create competition right from the first development stage For modern distribution channels: Early research and development of modern distribution channels will help the finance companies make appropriate investment decisions on infrastructure and technology solutions to avoid erroneous investments in the infrastructure is cheap but the ability to connect to independent product modules is not high, consuming a lot of resources in the future to complete the infrastructure Solutions for the finance companies with large market share of consumer credit products, focusing on cash loan products, have successfully implemented several digital loan products and diversified distribution channels For the finance companies with a market share of more than 10% of the total credit outstanding debt for each basic credit product, in addition to studying the above proposed solutions for the financial institutions, it is possible to research and deploy more the following solution: - For distribution channels via POS: researching the following solutions to perfect effective distribution channels and create solid relationships with partners who are placing POS, specifically as follows: + Need to periodically and irregularly review all existing POS, evaluate the costs arising from the POS and compare with the efficiency gained from the point of sale, thereby deciding: i) cutting off the POS not reach KPI and have incurred costs 30% higher than the average cost / point of sale but not guarantee minimum debt / selling points or not guarantee minimum profit / selling points, ii) maintaining and setting up challenging times, supporting sales points with incentive programs for customers combined with solutions to improve service quality such as after-sales customer care, professional level improving sale staff + Having a strategy to reduce the dependence on points of sale which located at unwholesome partners or who tend to require higher rental fees/policies include many unfavorable conditions for the companies The finance companies should early screening of these partners and getting ready to eliminate 21 the relationship because of cost issues and replace with other partners or other distribution channels more effectively - For modern sales channels: it is necessary to focus on distributing strategic products via mobile phones, websites and social networks, according to the following strategies: + Strategy to maintain a leading position in deploying modern distribution channels, especially mobile APP In fact, many finance companies are trending and starting to deploy this sales channel in the period of 20202025, keeping the leading position to help create a diverse and loyal customer base as soon as possible + Strategy to capture market share of online distribution channels and increase the proportion of wallets from online distribution channels: this is also one of the strategies to reduce reliance on POS through sales promotion programs on channels such as refunding, loans, preferential interest rates, gift travel vouchers, electronic products in order to attract maximum young technology-loving customers, leading in creating a shift in user awareness, thereby increasing Loyalty rate from customer number The finance companies needs to develop an annual budget to implement a new sales model and gradually shift income from traditional sales channels to digital channels, increasing operational efficiency by reducing point-of-sale and operating costs Solution for the finance companies with strengths in loan products thanks to its large POS system and potential customer ecosystem - Solution of managing and developing the sales channel via POS: continue to maintain profitable sales points and create target profits for financial statements; eliminate sales points that not reach the goal of scale and efficiency With a large number of POSs, The finance companies have the advantage to purify ineffective selling points without greatly affecting the operation scale Because the increase of POS will lead to an increase in operating costs and cost of premises, the finance companies should consider and evaluate the correlation between the growth rate of outstanding loans, the rate of profit growth and the annual growth rate of POS If these ratios are similar, continue to look for new partners to establish selling points or increase the number of selling points according to the partner's store size The direct sales channel will still be the best profit making channel in line with the capacity of the finance companies in this period - Solutions to combine traditional POS with modern sales channels: Because the business model is different from cash lending activities, which are focused on installment lending, The finance companies should not adopt a pioneering strategy and coverage strategy for online lending products on mobile phones which should be based on the advantage of a wide network of car dealers, shopping malls, electronics centers etc to select products using appropriate digital channels "Navigator Shopping" is a solution that the finance companies can refer to based on the implementation of the successful program "Auto Navigator" of Capital One Finance Company, USA in many years to develop products on a mixed channel including modern sales channels and traditional POS based on competitive advantages of the finance companies The borrowing process of Navigator Shopping program is as follows: customers choose the finance companies 's installment products via website / mobile, select direct products with full information and price on website / mobile, provide proof of income (if any) and identification documents using AI and OCR technology, the system will automatically approve and email the loan amount with the lending interest rate to the registered customer address, customer actualy needs purchase of the goods will bring the The finance companies's loan confirmation to the place of purchase, provide the loan confirmation, identification documents and fill out the loan application, due to a prior appraisal process staff of the finance companies at point of sale, only need to reconcile information received from customers and information on the system to complete the loan step with a time not exceeding minutes This program is aimed to customers who want to buy installments, which are in the process of changing their mindset from “the action must come to see the product before deciding to buy and study loan policy of the financial institution” to "the action of searching for your favorite products on the internet before having free time, then learn about the loan policy and loan interest rate offered by the finance companies and then come to see the product directly", even customers have the loan confirmation can be used to negotiate the selling price of products with points of sale or loan from other finance companies with interest rates and lending limits that are more competitive with the reference from finance companies The development of similar programs in the period of 2020-2025 helps finance companies keep up with digital trends and retain customers who are changing digital thinking In addition, the finance companies can also attract potential customers of other finance companies by providing a superior experience of purchasing and borrowing 4.2.2 Group of solutions to improve the quality management capacity of consumer credit 4.2.2.1 Improve risk management model in accordance with international practices 22 In Vietnam, one of the models and risk management are some commercial bank successfully applied and the international experts recommended widely applied, can apply to the financial company attached is a model of lines of defense or rounds of protection and risk management throughout the system The advantage of the model of lines of defense and risk management is that all members of the system must participate in the risk management process Therefore, this model ensures all risks in each of the financial company's operations are identified, controlled and minimized To be able to deploy a model risk management above, it is also necessary for the finance companies to have a risk management strategy developed and consolidated in the following directions: developing and applying a centralized, independent, standard and comprehensive risk management system; standardization of the system of internal control, internal audit and legislation; right credit standards manuals; apply advanced science and technology credit scoring system and program it into electronic credit scoring system which integrates with the science and technology database in order to make lending decisions and fraud risk management; developing and implementing a modern management information system for active risk identification, measurement and management; build a report system to monitor CAR capital adequacy ratio in credit activities to ensure the principle of automatic, timely warning, reporting and alerting the right subjects, principles and decision-making authority when overcoming Capital adequacy limit 4.2.2.2 Complete the collection and processing of customer data The finance companies need to develop and standardize customer data systems and apply Big Data analysis techniques, solutions that help analyze customer data from open, formatted and structured information sources Diversified structure, difficult to collect-manage-store, difficult to analyze in order to serve business activities, especially in credit risk management, 4.2.2.3 Completing customer data management system Individual customer’s technology data management system is a software system established to allow the management of individual customers and technology database and has outstanding features to help provide and analyze scientific and behavioral individual customers and technology Translation, products provided or in accordance with science and technology to support sales operations of salespeople, are a tool for salespeople to manage all sales activities in active and proactive tools for management levels to monitor, evaluate and direct sales activities in accordance with the business strategy of the business One of the main features on the system administrator database of clients including: managing customers, managing the sales force, management of customer potential, campaign manager of sales, managing sales activities row, assigning and supervising sales, management of cross-selling products and services, manage product information, consumer credit, reporting and analysis, alerts and utility etc 4.2.2.4 Perfecting the capacity of customer information security in digital business The deployment of business activities on the basis of, besides benefits offer guests every loan ons and an optimal experience, the financial company attached should focus on overcoming potential threats occur in the process, customers use APP to borrow capital such as information theft, attack on mobile applications, etc The main risks stemming from this information security may come from customers in the process of using a mobile phone, comes from the finances companies and third party One of the proactive information security solutions is raising customer security awareness The financial company attached to proactive risk communication on Highway personal information, risk having customers and the security measures to customers Some security measures such as customers set a password for the phone, not provide the APP application password to others, periodically change the password, and avoid accessing the phone to websites at risk of virus infection high… 4.2.3 Group protection solutions and brand reputation the finance companies and commercial bank 4.2.3.1 Improve quality serving Quality of service is still limited in some aspects such as after-sales care significantly affected the reputation and brands the finance companies To ensure product supply consumer credit to customers professional, high quality, minimize complaints during and after the sales process, the financial company attached to implement solutions follows: First, the need to change the perception and opinion of the finance companies under the word " complete growth target consumer credit in terms of scale and achieve efficiency " to " satisfy the maximum demand demanding customers with the best quality of services to achieve business goals ”to ensure long-term sustainable development Secondly, developing a set of service quality standards with core values of brand image, facilities, customer comfort, trustworthiness, professional standards staff, translation customer support services are available, ensuring operational efficiency 4.2.3.2 Responsible lending solution To protect the reputation and brand of parent commercial bank and the finance companies, the finance companies should be in compliance with the responsibility of lenders to help customers understand loan products, rights and responsibilities of the borrower etc, thereby reducing customer complaints and grievances against the company Here are some solutions for the responsible lending the finance companies should apply: Construction of internal regulations on the responsibility of the lender; implement internal communication programs on 23 responsible lending, develop competition programs on responsible lending to customers; t burning out unscheduled surveillance program through direct interviews with customers or calls for recognition of the customer reviews on the implementation of the content lending responsibilities of counselors 4.2.3.3 Improve the quality of human resources and professional ethics Human resources professional ethics and quality in an important role to ensure the prestige brand the finance companies and parent commercial bank Solutions for human resources to ensure the aim of protecting the reputation and brand at the finance companies and parent commercial bank to resolve some or all of the matters set out as follows: personnel must ensure professional ethics and professional skills, improve the quality of human resources through training, implementing remuneration policies to retain and create the loyalty of competent officials 4.3 Some recommendations 4.3.1 Complete the legal system of responsible lending and borrowing The SBV needs to complete a clear and complete legal framework for responsible lending and borrowing In addition, the finance companies needs to promulgate all internal regulations, quantify the responsibilities of the financel companyofficials on responsible lending, and have a responsible lending monitoring and evaluation system For borrowers, it is necessary to develop sanctions and put in the legal framework both civil and criminal responsibilities that borrowers face in case of lack of cooperation with the financial company Proposing the Government to incorporate financial education and personal finance management programs into general education programs to help people have an early childhood understanding, reducing social consequences due to lack of understanding borrower's finances 4.3.2 Operating the mechanism of conditional consumer credit growth Target growth of consumer credit each year as at present difficult for the finance companies building strategic long-term development Recommended SB planning and application growth rate of consumer credit for the financial company in time minimum 3-5 years based on the evaluation of the specific conditions of the charter capital, operational capacity, power its risk management and financial indicators of the scale outstanding consumer credit , profits, NPLs, capital adequacy ratio To avoid applying for and the lack of regulations to make adjustments to the growth rate of consumer credit each year, the central bank should develop and standardize the conditions applicable in the case of the financial company allowed it increase, or adjust the decrease of credit growth in the year 4.3.3 Deploy big data in e-government The main source of information from e-government big data applications is always an important input source for Big Data applications in the operation of the finance companies Big data application of the finance companies is effective if linking and inheriting public electronic data from the Government information system for a minimum of citizens' information such as custom papers relatives (including people's identity cards, passports, citizen identity cards, military identity cards), personal health insurance numbers, social health insurance, annual personal income tax, data data on tax evasion and tax fraud, traffic violations, civil and criminal judgment enforcement cases, etc Some contents related to the deployment of big data in e-government should be taken into account by agencies The Government of Vietnam considers: building and transforming the traditional government system into a digital system; develop regulations related to ownership and privacy rights of information of people on digital system; building an open data system that enables data sharing and collaboration in data analysis; Data security, creating safety experiences for people by developing safe egovernment 24 CONCLUDE Consumer credit activity of the finance companies is the kind of financial services are indispensable in modern society The development of consumer credit of the finance companies is an important contribution to the development of individuals and families who use the services of the finance companies and social economy in general By the general application of research methods, the thesis has achieved the objectives and tasks set out First, clarify theoretical framework on consumer credit and the development of consumer credit of the finance companies The contents of development of consumer credit of the finance companies are fully codified: the concept, content of development of consumer credit in terms of quantity, quality, criteria and factors affecting the development of consumer credit Evaluation criteria for development of consumer credit include 08 quantitative indicators, and 04 groups of factors affecting the development of consumer credit from the intrinsic the finance companies, parent commercial bank, borrowers and a set of elements of the business environment Second, practical research developing consumer credit of the finance companies shows that active consumer credit to achieve success on the basis of implemented diverse products credit standart use platform distribution channels basically associated with the foundation of modern technology, strategy sharing effective customer between parent commercial bank and the finance companies, the application scoring credit ratings IT-based platform helps to screen clients and accelerate loan processing time Practical research experience of state management for the development of consumer credit in Japan and the EU also showed the negative impact of limited interest and limited growth in consumer credit toward the finance companies’ main customers and society Third, from a theoretical framework basis, from the data collected secondary and resulting customer surveys, interviews professional staff of the finance companies, the author has clarified the status and evaluate the results of the development of consumer credit of the finance companies in Vietnam in the period 2014-2019 with successful year include: i) the finance companies pressure successful methods developed consumer credit traditional suit market characteristics consumer credit period 2014-2019, ii) contribute to the income of the Commercial Bank attached, iii) improve the position of the parent commercial bank and confirm the right direction of the commercial bank when implementing the consumer credit model at the finance companies, iv) the risk management is approaching international credit quality is maintained in a safe and effective manner, v) contributes positively in the implementation of black credit restriction policy under the direction of the Government Some restrictions the financial company attached face include method development of consumer credit is not keep up the trend of consumers in the age of 4.0, the risk of affecting the image and cause adverse effects to some financial indicators of parent commercial bank , and the principle of responsible lending and borrowing have not been properly considered The main reasons are due to the unstable, unfaithful human resources, the quality of service does not meet customer expectations; the capacity of information technology has not met the mode of digital business, strategy of parent commercial bank, understanding of borrowers and some of the provisions laws consumer credit remains unclear Fourth, from the results of SWOT analysis linked with development-oriented consumer credit of the financial company under the period 2020-2025, the author has proposed three key solutions include: shifting digital business (products and distribution channels), complete quality management capabilities of consumer credit and measures to protect the reputation and brand of the finance companies and parent commercial banks The author proposes to the state management administration to perfect the legal system of responsible lending and borrowing, manage the conditional credit growth mechanism and deploy big data in the Government of electricity in order to support the development of consumer credit of the finance companies in Vietnam The author of the thesis hopes that the above research results will contribute to the development of consumer credit of the finance companies in Vietnam in accordance with the general development strategy of both parent commercial banks and the finance companies, towards the goal of safe development, efficient and solid In addition to the achieved results, the dissertation research results also have certain limitations such as: the author has not used quantitative research methods to process data and data, has not collected sufficient data In-depth data on the development of consumer credit products from basic consumer credit products, the number of customers borrowing consumer loans over the years due to the information confidentiality of the finance companies In addition, the dissertation has not studied in-depth on the peer-topeer lending model of the finance companies in Vietnam The reason is that Vietnam does not have a legal corridor, the system of related documents about Fintech companies and peer-to-peer lending activities Although the peer-to-peer lending model is a business that applies technology in the era of technology 4.0, the potential risks of this form are quite large; it takes time to study and review, and at the same time need to take action With a clear legal framework, it is possible to determine the suitable business model for the finance companies ... quantity (scale, quantity), and ensure quality of credit operations” From the viewpoint of approaching from the field of commercial business, the development of credit thinking in quantity is... security awareness The financial company attached to proactive risk communication on Highway personal information, risk having customers and the security measures to customers Some security measures... analyzing customer behavior around the world and Vietnam - Author Bui Manh Cuong (2017) when studying "Credit risk management at Home Credit Vietnam Co., Ltd." has clarified the theoretical basis
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