Vietnam can be an inspiration in many ways: an interview with Ivo Slanina, Head of Sales of HC Vietnam, for the Czech Pravo daily
This interview originally appeared in the Czech Pravo daily newspaper on February 3rd, 2017.
The Home Credit brand has been present in the Vietnamese market since 2009, when it succeeded there mainly thanks to financing motorcycle purchases. What has changed since then?
Economic growth in Vietnam, with its population of 90 million, is mainly driven by household consumption and Home Credit is helping to improve people’s standard of living against the backdrop of this trend. While in the past, our success largely relied on loans for motorcycles, today we are chiefly lending for consumer electronics such as mobile phones, laptops and notebooks, and are also starting to lend for white goods such as refrigerators and washing machines, and for TV sets. Motorcycles already only account for approximately 10% of our business. Although quite a lot of them are still being sold, some three million per year, the sales of mobile phones are some 20 million units per year. People in fact want to buy electronics, in particular smart phones, on instalments much more frequently than any other goods. Our estimate is that in Vietnam, up to 40% of the goods related to digital communications, services on the Internet are sold with support provided by one of the consumer finance companies.
However, the real boom in hire purchase sales of electronics started in mid-2015 when we were the first on the market to begin offering loans without any mark-up. Zero interest rates kick-started the whole market.
Where do you generate your profit when customers have zero interest rates?
When you are able to double the volumes of their sales for manufacturers within a single year and to approach customers who earlier never thought of shopping on credit, then companies such as Korea-based Samsung and China-based Oppo or large retail chains are willing to contribute to your distribution costs. And customers then really receive loans at a zero rate of interest.
How many customers do you have in Vietnam?
We serve a quarter of a million people every month. More than 4.5 million clients have already accepted a loan from us; there are approximately 1.7 million of active clients, i.e. those who are repaying their loan at the moment when we are having this conversation. Sixty to seventy percent of them have bought electronics on credit, one-tenth of them motorcycles, and the rest are cash loans. And as regards electronics and motorcycles, we are the clear consumer finance market leader because we were the first and the most successful to offer instalments without any mark-up.
What are your business results for last year?
As I have said, last year we doubled the volumes of sales and also profit year-on-year. I am afraid I am not able to disclose the profit to you at this moment because the regulator has obliged the Home Credit Group to disclose its results only after the audit, which will be in early March.
What is the Vietnamese’s payment discipline like compared with Czechs?
The Vietnamese are very responsible debtors in general. Both in terms of their ability to calculate the amount of credit that they are able to repay without any problems (in fact, we are helping them with this in our financial competence courses) and in terms of keeping the due date of instalments. In addition, the proportion of our loans past due is also decreasing as we deploy ‘big data’ in our risk management. Big data means unstructured data on the behaviour of samples of population of different sizes. This data, which comes from various sources such as telephony operators, social networks and electricity suppliers, does not tell us anything about a particular individual, a particular name, but it is a relatively accurate indicator for modelling the probable behaviour of our clients. By the way, this makes it possible for us to approve a loan in something like four minutes. For this, we need a host of talents in IT, statistics, risk management etc. Lending is increasingly about technologies and about those who are able to integrate them with financial services. In Vietnam, ‘the regulator’s tolerance’ of non-performing loans is set at 10% of the portfolio; we are at less than a half of this, which is a very decent result also in an international comparison.
What income do the Vietnamese have?
It is difficult to estimate and a comparison with the average wages in CZK in the Czech Republic will be outright misleading. In Vietnam, the scissors between manual, office and managerial professions are relatively wide open. The difference is much larger than in the Czech Republic. Simplifying somewhat, our clients’ average wages are around CZK 7,500.
Vietnam is frequently mentioned as one of the most promising markets. Do you also think so?
No question about it. Not only because of the size of the population. That country also has a very favourable demographic profile, a lot of children are born there, there is a predominance of young people, and they are eager to achieve success and ready to apply themselves to work. The purchasing power and the economy are developing well, the standard of living is gradually rising and the Vietnamese can afford to spend more and more on goods. In addition, they love modern technologies and so they hold mobile phones in their hands and laptops on their laps all the time. And as their purchasing power increases a lot of new houses and flats are being built. This creates the potential for a further growth in demand; this growth is huge and, in my opinion, unlimited, at least for the time being. In order for us at Home Credit to keep this long-term rate of growth we have to behave in a way that our customers will keep coming back to us. This is why we have, for example, a large team who do nothing else than listen to customers, find what customers think and what they are telling us by, say, their behaviour during repayment, where they go for inspiration for shopping, and also in what ways we annoy them. Moreover, with customers who experience a short-term loss of income but want to continue to repay to us as due, we always try to find a solution so that they all gladly come back to us.
In what way do average Vietnamese customers differ from Czech customers?
Vietnamese customers definitely do not hurry as much as Czech customers do; they are willing to wait for some time. I am saying this despite the fact that the speed at which we are able to serve customers is important for us. And it is one of our major competitive advantages. On the other hand, Vietnamese customers buy a smart phone and demand very good customer services from the very beginning. In that country, vendors are obliged to sell activated phones. You are sitting there as a customer, they open it, turn it on, turn it off, show you what you are to do, and all of this takes time.
Customers are calmly waiting, have everything explained to them, and then go home contentedly. In the Czech Republic, it probably couldn’t work this way.
What else has attracted your attention in Vietnam?
We could draw inspiration from the Vietnamese in many areas. They are most tranquil, kind and smiling people. You can see this on the roads most visibly.
From our perspective, the traffic there is absolutely chaotic. But they do not have in them this driving aggression, who outsmarts whom and who goes first. They all reach a crossroads slowly, and line up there in an orderly manner. If we were able to behave so considerately to each other on the roads, we would probably have much fewer road accidents in our country. On the other hand, the Czech or European mentality is really different; we are more result-orientated than they are. We are satisfied when we achieve the results, while in Asia the process itself is often simply fine, the path itself can be the goal. Yes, the cultural differences are wide; but this should not discourage us and we could learn a lot of things from them.