Reasons to make Vietnam car finance market post record growth by 2023

Vietnam’s car finance market is projected to reach more than VND135 trillion (US$5.87 billion) credit disbursed by the end of 2023 thanks to stronger purchasing power of middle class, lower interest rates, and improved transport infrastructure. 


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Firstly, a growing appetite for passenger and commercial vehicles among middle class will top the reasons identified for the growth following their better income, according to Ken Research. 

Statistics by Mekong Development Research Institute showed that Vietnam’s middle class including those with monthly income of VND18 million (US$780)-VND40 million (US$1,700), is estimated to account for 33% of the total population by 2020. 

As a result, there would be an increasing number of customers buying a passenger vehicle due to its status symbol and added comfort as compared to motorbikes. 

According to Viet Dragon Securities Company, auto consumption in Vietnam would be on the rise from 2019 thanks to reasonable prices of complete built-up (CBU) from ASEAN members which benefit ASEAN Trade in Goods Agreement (ATIGA). In addition, the upcoming ratification of the EU-Vietnam Free Trade Agreement (EVFTA) would open a market for luxury cars to Vietnam as import tariffs on CBU imported from the EU would be slashed to 0% within a decade. 

Secondly, the average interest rate of the car finance market for the year 2017 was recorded at 7.4% per annum, it was 7.6% per annum in 2018, compared to 13.5% per annum in 2012. 

The lowering of interest rates has enabled a higher segment of the population to be able to afford loans to buy cars.

Notably, the auto loan outstanding grew at a compound annual growth rate (CAGR) of roughly 30% during 2012-2018, according to Ken Research, a market research and consulting company based in India and the US currently curates exclusive industry articles for media agencies such as Forbes, Thomson Reuters, Yahoo news, Your Story and others. 

The Vietnamese economy has grown at CAGR of 9% during 2013-2018 driven by foreign direct investments (FDI). Vietnam’s fast economic growth is largely thanks to geographical location, political and social stability, leading to increasing number of manufacturers entering the country. 

The auto finance market is highly fragmented with fierce competition among auto financing institutions. Majority of credit institutions are located in Hanoi, Ho Chi Minh City – the southern economic metropolis. 

In the time to come, banks and consumer financing companies plan to develop their presence in the tier 2 cities of the country such as Hai Phong, Danang, and Bien Hoa to expand their customer bases. 

Thirdly, the government has focused on improving infrastructure throughout the country to better handle the surge in passenger vehicle owners. 

The urban development project in collaboration with the World Bank took place during 2002-2014 provided a wide network of roads nationwide. With the investment from foreign investors, public and non-public sectors, Vietnam has constructed numerous highways, mostly under the build-operate-transfer (BOT) form. 

Upgraded infrastructure has enabled the country to increase traffic capacity and lower traffic accidents. 

Another reason contributing to the growing auto finance market is the increasing operations of app-hailing taxi services such as Grab. Good quality of services, comfortable journey, and cheaper price compared to Vietnam’s local traditional taxis has boosted the presence of this kind of transport services. Approximately 21,000 car registered in Ho Chi Minh City for Grab as of 2017. 

These improvements have enticed customers to purchase increasing amounts of passenger and commercial vehicles. All these factors have together pushed the market forward

Hanoitimes 

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