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Why Vietnam is tough for Korean card firms to crack

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Shinhan Card headquarters in Seoul / Courtesy of Shinhan Card

Shinhan Card headquarters in Seoul / Courtesy of Shinhan Card

Shinhan, Lotte post net losses for Q1 amid Southeast Asian nation's economic downturn
By Anna J. Park

Shinhan Card and Lotte Card, which had both ventured into Vietnam in search of a new growth driver, are now struggling with annual losses due mainly to the prolonged high interest rates wreaking havoc on the local economies of the Southeast Asian country. In response, both credit companies have been focusing on digital solutions as strategies to attract young customers.

According to the latest data on the state-run electronic disclosure system, Shinhan Card and Lotte Card's Vietnamese operations posted net losses of 5.2 billion won ($3.7 million) and 3.5 billion won, respectively, for the first quarter of this year.

Shinhan Vietnam Finance (SVFC), the card company's subsidiary there, turned to a deficit last year, logging an annual loss of 4.4 billion won.

Since being incorporated as an affiliate of Shinhan Card in 2019, SVFC had successfully operated loan products targeting high-credit customers in major cities like Ho Chi Minh City and Hanoi. It achieved a net profit of 18.3 billion won in 2019, and had since recorded net profits consistently: 22.7 billion won in 2020, 6.5 billion won in 2021 and 17.3 billion won in 2022.

The card company's rosy outlook in the Vietnamese market changed last year, however, due to the downturn of the local economy that depends heavily on exports.

With Vietnam's total trade volume hitting a three-year low last year, local customers, most of whom are working in manufacturing industries directly related to the volume of international trade, suffered deteriorating repayment ability, which in turn led SVFC's performance to plummet.

Lotte Card headquarters in Seoul / Courtesy of Lotte Card

Lotte Card headquarters in Seoul / Courtesy of Lotte Card

Lotte Card's Vietnamese subsidiary, Lotte Finance Vietnam, is also struggling with accumulated net losses. Since its launch in 2018, it has consistently recorded annual net losses of 7.7 billion won in 2019, 16.7 billion won in 2020, 13.1 billion won in 2021, 10.1 billion won in 2022 and 12.4 billion won in 2023. Its debt now stands at 207.2 billion won.

A Lotte Card official said the losses were due to the substantial initial cost required to entirely transform Techcom Finance, a Vietnamese consumer finance company that the Korean card company acquired in early 2018, into a capable operator of installment financing, credit cards and loans. This required huge initial investments in system development, branch expansion and business foundation, causing the annual losses.

Market watchers warn that considering the relative lack of highly sophisticated financial infrastructure in the Southeast Asian country, compared to other advanced financial powerhouses, Korean card companies need to particularly manage delinquency rates, while diversifying revenue streams beyond credit sales operations.

Digitalization is key strategy for future profitability

Still, both companies remain optimistic that the performance of their Vietnamese subsidiaries will improve gradually in the second half of the year, given that Vietnam's GDP is marking a high growth rate again in the first quarter, indicating a recovery trend. They also aim to focus on digitalizing their card businesses to secure younger clients in the country.

"Shinhan Card expects a business turnaround in the first half of the year through enhanced local customer analysis and loan refinement," an official from the card company said.

SVFC is also focusing on digital transformation, such as developing a mobile loan platform, while proactively seeking expanded partnerships with Shinhan's banking and insurance subsidiaries in the Southeast Asian country.

Lotte Card also views digitalization as a key to its medium- to long-term business strategy in the Vietnamese market, putting an emphasis on expanding its influence in Vietnam's digital finance sector. Its strategy aligns with the rapid shift toward digital payments among the country's younger generation.

"Unlike other card companies, Lotte Card began our business in Vietnam by acquiring a company with a license, which incurred significant initial costs for building a business foundation. The company aims to accelerate the expansion of the Vietnamese consumer finance market through expanding high-quality assets, with the goal of achieving profitability this year," an official from Lotte Card said.

Park Ji-won


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