The key factors driving growth in the Auto Finance Market are digitalization, development of infrastructure, regional connectivity, economic boom due to increased exports & foreign investment, rising demand for commercial vehicles due to rise of cab sharing services and buses due to improved roads and highways.
The report titled “Vietnam Auto Finance Market Outlook to 2023 - by Loan Tenure, by Type of Institution (Commercial Banks and Non- Banking Financial Institutions) and by Type of Vehicle (Passenger and Commercial)” Ken Research suggested a growth at a CAGR of close to 26% on the basis of credit disbursed in the Vietnam Auto Finance Market during 2018-2023.
Vietnam auto finance market has been identified at a growth stage with a growing appetite for passenger and commercial vehicles. The auto loan outstanding has grown at a CAGR of close to 30% during 2012-2018. The market is highly fragmented with fierce competition among auto financing institutions. Majority of credit institutions are located in Hanoi and Ho Chi Minh City, in the northern and southern regions of the Vietnam, being the financial and economical hubs of the country. The banks and consumer financing companies are projected to develop their presence in the tier 2 cities of the country such as Hai Phong, Da Nang and Bien Hoa as to expand their customer base. The customers which take hire purchase loans in Vietnam include retail or small scale customers and institutional or large scale customers. The loans are used for personal purpose; commercial activities industrial use, pick up and drop services, public transport and others. This sector has been driven by a stable and growing economy, increasing purchasing power of the middle class, improvements in infrastructure and lower auto lending rates. The average interest rate of the auto finance market for the year 2017 has been recorded at 7.4% per annum. The major restraining factors of the market have been low geographical presence, high non performing loans, increasing price competition, and high operating costs as a result of digitalization.
Global taxi services such as Uber and Grab entered Vietnam in 2014 and have since continued to expand their operations, increasing the number of commercial vehicles financed from 2014-2018. The customer base has increased due to the good quality of service, comfortable journey and cheaper price as compared to Vietnam’s local traditional taxis. There have been 21,000 registered cars in Ho Chi Minh City (Saigon) for Uber and Grab as of 2017. The interest charged is 7.6% per annum as of 2018, much lower as compared to 2012, which was at 13.5% per annum. The lowering of interest rates has enabled a higher segment of the population to be able to afford auto loans, adding to the growing market.
The Vietnamese economy has grown at CAGR of 9% during 2013-2018. The economy has flourished with Foreign Direct Investments (FDI) as the driving force, accounting for 70% of Vietnam’s exports according to the International Monetary Fund (IMF) as of 2017. This is due to Vietnam’s geographical location as well as its political and social stability, leading to increasing number of manufacturers entering the country. The middle class of Vietnam has rapidly developed during the review period. There are an increasing number of customers buying a passenger vehicle due to its status symbol and added comfort as compared to motorbikes. The government has focused on improving infrastructure throughout the country to be better able to handle the surge in passenger vehicle owners. The urban development project in collaboration with the world bank took place during 2002-2014 has been successful in constructing 243 km of new or rehabilitated primary and secondary access roads in Vietnam. The government has also constructed numerous highways in country resulting in higher traffic capacity and lower accident rates. These improvements have enticed customers to purchase increasing amounts of passenger and commercial vehicles. All these factors have together pushed the market forward.
Resource: Ken Research
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