FE CREDIT grows with improving earnings power and quality in first half of 2019

FE CREDIT has ended 1H2019 with continued growth momentum, along with strong growth in profitability. The results reveal much about the company’s prospects in years to come.

Loan book without institutional loans has grown by 9.4% compared to Q1 2019 and by 26% compared to Q2 2018. Despite a smaller growth rate in loan book, the corresponding revenue has increased by 13%, a double-digit growth compared to Q1 2019 and by 41% vs Q2 2018. An increasingly better portfolio mix has helped in bringing the NPL at 5.4% (Vietnam Accounting System standard) and driven by improving credit quality. It demonstrates that the strategy of deepening existing customers’ share of wallet is yielding results, in terms of improving portfolio asset quality with known customers.

Foundation for sustainable growth

There are three main growth engines that have laid the foundation of FE CREDIT’s loan book growth in this quarter:

1. Cross-sell and Loans Top Up remain the largest contributor to FE CREDIT’s total loan book. Thanks to FE CREDIT’s investment in big data analytics, the resultant ability to analyze and identify potential customers for targeted offers has led to cross sell/top up growth by 10% compared to Q1 2019 and by 44% vs Q2 2018, with such loans constituting 54% of the total portfolio.

2. FE CREDIT’s new loan disbursements to new customers has recorded a growth of 9% compared to Q1 2019 and by 24% versus Q2 2018, making it the second-largest contributor to the total loan book. This growth has been assisted by the fully automated lending platform $NAP – one of the most popular finance apps in Vietnam – which has garnered more than 1.4 million downloads. $NAP has increased the awareness and self-serve accessibility of FE CREDIT loan products for new-to-bank customers.
3. As standard of living is improving across Vietnam, the need for consumer durable loans and two-wheeler loans issued at the point-of-sale continues to grow steadily. FE CREDIT’s total loan at POS (point of sale) make up 9% of total loan book & grew by nearly 10% vs Q1 2019. FE CREDIT has captured the increase in market demand, by boosting strategic partnerships with leading retailers who make up the bulk of the home appliances and two-wheeler sales in Vietnam.

Besides these three pillars of FE CREDIT’s loan book, credit cards also made a substantial contribution to the growth of ENR balances. Credit Cards has witnessed a growth of 26% compared to Q1 2019 and over 102% versus Q2 2018 with the total credit card base reaching over 1.7 million. The incredible growth rate of the credit card portfolio signals the massive future growth opportunity for FE CREDIT on revolving credit products.

Improving earnings quality by revolving loan model

FE CREDIT’s credit card business is one of the fastest growing in Vietnam in terms of size and volume. It currently makes up over 40% of total net receivables. Credit Cards offers a more engaged relationship with customers, since it is used for everyday lifestyle spends – this engagement is evidenced by the fact that card spending increased over 2X in Q2 2019 compared to Q2 2018.

Improving profitability with improved cost management and portfolio quality

NPL (Non-performing loan ratio) reduction has been on the right track as this number has reached 5.4%, below the internal benchmark of 6%.  Lower NPL is attributed to the strategic shift to cross-sell and credit card issuance, making better use of on-us behavioral information for risk-based-pricing as compared to fresh personal loans to new customers.

Cost-to-income ratio (CIR) has reduced to 30% in this quarter, thanks to digitization and other initiatives to drive cost efficiency. The improvement in cost-to-income ratio has been through conscious effort to digitize manual operational processes, and with a focus to reduce operational costs such as postage, courier, etc.

Profit Before Tax grew by 113% in Q2 2019 compared to Q2 2018 and 79% compared to Q1 2019 as a result of the above improvements across all business parameters.

Increasing omni-presence will be at the center stage of future growth

FE CREDIT’s positive trajectory validates its transition to a new growth phase in the coming years with higher profitability and deeper customer engagement.

In the first phase of its journey, FE CREDIT’s growth was largely driven by the expansion of its physical distribution. For the last two years, FE has focused on digitization and gained tremendous success which is evident in its business results. In the next phase, FE CREDIT has a vision to be omnipresent across all consumer touch points with relevant offerings and an always-available revolving credit line. In order to deliver on this new vision, the company has tied up with many global leading fintech players and will enter into strategic partnerships to make credit available at customers’ fingertips, on their mobile phones.

Bottom line

FE CREDIT’s success in getting higher customer engagement will be the next step for FE CREDIT’s growth plan in today’s high technology era.