FINANCIAL INSTITUTIONS

CREDIT OPINION14 June 2019

Update

RATINGS

Home Credit Vietnam Finance CompanyLimitedDomicile Vietnam

Long Term Rating B3

Type LT Corporate FamilyRatings

Outlook Stable

Please see the ratings section at the end of this reportfor more information. The ratings and outlook shownreflect information as of the publication date.

Contacts

Simon Chen, CFA +65.6398.8305VP-Senior Analystsimon.chen@moodys.com

Eugene Tarzimanov +65.6398.8329VP-Sr Credit Officereugene.tarzimanov@moodys.com

Heejin Lee +65.6311.2601Associate Analystheejin.lee@moodys.com

Graeme Knowd +65.6311.2629MD-Bankinggraeme.knowd@moodys.com

CLIENT SERVICES

Americas 1-212-553-1653

Asia Pacific 852-3551-3077

Japan 81-3-5408-4100

EMEA 44-20-7772-5454

Home Credit Vietnam Finance CompanyLimitedUpdate to credit analysis

SummaryHome Credit Vietnam Finance Company Limited's (HCV) long-term corporate family ratingof B3 is based on the company's b3 standalone assessment, which takes into account its B1Financial Profile and B3 Operating Environment scores. The latter score captures Vietnam's(Ba3 stable) macroeconomic indicators and the high risks inherent to Vietnam's consumerfinance industry.

HCV's b3 standalone assessment reflects its exposure to high credit risk in unsecuredconsumer finance in Vietnam, as well as its modest funding and liquidity, with high relianceon wholesale funding. Against these risks, HCV maintains a high capital buffer and strongprofitability, despite an increase in credit provisions in 2018.

HCV's rating does not incorporate any affiliate or government support.

Credit strengths

» Strong capital buffer to absorb unexpected credit losses

» Profitability will remain solid, although declining

» Good technological and risk platform

Credit challenges

» Exposure to high credit risk inherent to unsecured consumer finance

» High reliance on wholesale and short-term funding, which leads to refinancing risk

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OutlookThe rating outlook is stable, reflecting our expectation that HCV will maintain stable credit fundamentals over the next 12-18 months.

Factors that could lead to an upgradeWe could upgrade HCV's rating if the company improves its funding and liquidity profile such as increasing the liquidity buffer toovercome debt repayments over a 12-month period while maintaining stable asset quality and capital. A higher Industry Risk score forVietnam's consumer finance market could result in upward rating pressure.

Factors that could lead to a downgradeWe could downgrade HCV's rating if the company's solvency and liquidity significantly deteriorate, or if we lower the Industry Riskscore.

ProfileHome Credit Vietnam Finance Company Limited (HCV) provides small unsecured consumer loans with high interest rates comparedto that of banks. The company originates loans for consumer goods such as mobile phones and motorbikes at retail shops and dealers.Subsequently, it cross-sells cash loans, which are larger in size, to some of its existing customers with good credit history. Cash loansare also available to new clients.

As of year-end 2018, HCV's loan book was composed of cash loans (58% of loans) and loans for purchase of consumer durables (27%),motorbikes (14%) and credit cards (1%). Loans to purchase consumer durables and motorbikes are point-of-sale loans.

HCV started operations in 2009 and is headquartered in Ho Chi Minh City. HCV is the fully owned subsidiary of Home Credit B.V.,which is part of Home Credit Group, an international consumer finance provider with operations in 10 countries, which is in turncontrolled by PPF Group. HCV benefits from extensive technological and management support from Home Credit Group.

HCV served customers via its network of 7,888 physical and online point-of-sale outlets in 63 cities and provinces in Vietnam as ofyear-end 2018. The company had 9,510 employees as of the same date.

Detailed credit considerationsExposure to high credit risk inherent to unsecured consumer financeWe assign a Caa1 score to the company's Asset Quality to reflect its exposure to high credit risk inherent to Vietnam's rapidly growingunsecured consumer finance industry.

The company's asset quality has improved in recent years because of stricter credit underwriting, as measured by its nonperforming andwritten-off loans/gross loans of 7.8% in 2017, down from 21.3% in 2014.

Despite the improvement, HCV's asset quality is prone to rapid deterioration if the operating environment in Vietnam weakens.Furthermore, the consumer finance market in Vietnam is highly volatile, with a short industry track record of around 10 years. Thecredit infrastructure in Vietnam, such as credit bureaus, is evolving with some good progress in the last few years.

Adding to credit risk is HCV's very rapid gross loan growth of 52% in 2017 and the 40% average over 2014-17. HCV’s loan growthwas 11% in 2018 from a year earlier because of (1) increasing competition in the consumer finance industry, and (2) the State Bank ofVietnam's aims to curb risks in the consumer finance industry by tightening unsecured consumer lending.

The stricter regulations will help alleviate asset-quality pressure by curbing excessive growth in the riskier consumer loan segment,which will lead to stronger risk-adjusted returns.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page onwww.moodys.com for the most updated credit rating action information and rating history.

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Good technological and risk platformHCV originates most new loans in a matter of minutes, which places a great emphasis on the quality of its systems and procedures. Inour view, HCV is advanced in terms of its technological platform and risk management procedures such as scorecards, credit checksand borrower validation. The firm benefits from technological and risk support from the parent Home Credit Group.

Collection efficiency is critical in the unsecured consumer finance industry, both at the early overdue stage (so-called soft collections)and late stage (hard collections). The firm's overall collection efficiency is strong at above 90%.

Strong capital, supported by good profitabilityWe consider the sizable capital buffer an important credit positive for HCV's standalone credit profile, given the company's exposure tohigh credit risk inherent to Vietnam's consumer unsecured business.

HCV’s capital buffer, as measured by tangible common equity/tangible managed assets is strong at 18.8% as of year-end 2018.However, the company's capitalization has been gradually declining since 2015 because of its previously rapid loan growth and cashdividends. The company's equity/assets decreased slightly to 20.0% as of year-end 2018 from 20.8% a year earlier.

HCV historically pays large cash dividends to its parent company. The company's dividend payout in 2018 stood at 60% of its netincome for 2017 (2017: 58%, 2016: 61%). Nonetheless, HCV's capital level is high compared with that of its global peers.

We assign a Ba1 score for Capital to reflect our expectation that the company's capital will moderate over the next 12-18 months butstill remain at a comfortable level.

Profitability deteriorated but will remain at a good levelHigh interest rates offered on unsecured consumer finance loans translate into very high profitability, as reflected by the high 10%average return on average assets during 2015-17.

However, HCV's return on average assets declined to 7.1% in 2018 from 10.8% in 2017, mainly driven by a combination of narrower netinterest margins and higher credit costs. The company's credit costs rose sharply to 53% of its pre-provision income in 2018 from 34%in 2017, weighing on the bottom-line.

Nevertheless, HCV's profitability was supported by its high net interest margin of 26% in 2018, although slightly lower than 28% in2017. HCV's net interest margin has been on a declining trend since the peak of 40% in 2014 because of increasing competition in themarket, as well as increasing regulatory scrutiny over loan yields charged.

HCV has been managing its expenses to support profitability, as reflected by a gradual decline in its cost-to-income ratio to 38% in2018 from 47% in 2015.

We expect HCV's profitability to remain under pressure over the next 12-18 months, because of decreasing margins and partially offsetby a gradual moderation in credit costs. In view of the expected decline in profitability and earnings volatility, we assign a Baa1 score tothe company's Profitability.

High reliance on wholesale and short-term funding, which leads to refinancing riskHCV's funding is a vulnerability. HCV as a finance company is not allowed to accept customer deposits and it relies on wholesalefunding. Its funding base remained broadly stable in 2018 and is split between loans from banks (55% of total funding as of year-end2018) and certificates of deposits (45%), with the former more concentrated in single names.

The short-term nature of the company's funding is credit negative. The share of debt maturing in 2019 as a proportion of total debtstood at 61% as of year-end 2018 (2017: 64%), indicating refinancing risk. Nonetheless, we view the risk is mitigated to some extent bythe positive liquidity gap the company maintains in the maturity bucket of less than 1 year.

In terms of foreign-exchange risk, some of HCV's borrowings are in US dollars; however, the firm enters into derivative transactionswith local banks for hedges.

As of year-end 2018, HCV's liquid resources (that is, cash and cash equivalents, and committed credit line) covered 20% of debtmaturing over the next 12 months (2017: 21%), which is a modest level according to our methodology.

3 14 June 2019 Home Credit Vietnam Finance Company Limited: Update to credit analysis

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HCV's reliance on secured debt increased to 21% of its tangible assets as of year-end 2018 from 13% a year earlier. We understandthe company plans to gradually reduce the amount of secured funding in its funding mix over time. Nonetheless, the ability of financecompanies to access new sources of funding during times of market stress remains largely untested.

HCV's weak liquidity is somewhat balanced by the company's fairly good cash flow generation because of the nature of its business,with its funds from operations/total debt at 15% as of year-end 2018, lower than 19% a year earlier. In line with the weakeningprofitability, we expect the company's funds from operations to continue to decline in the next 12-18 months.

We assign a B3 score to HCV's Cash Flow and Liquidity in consideration of the above factors.

Operating environmentWe assign a B3 score to HCV's Operating Environment, based wholly on the industry risk of the Vietnamese consumer finance industry.The Ba2 Macro-Level Indicator score for Vietnam does not have any weighting in the scorecard because this score is higher than theIndustry Risk score.

The Operating Environment score constrains HCV’s Financial Profile score of B1 and results in a B3 adjusted financial profile.

Macro-level indicatorHCV's operations are solely in Vietnam and hence, 100% of its revenue is generated domestically. The Ba2 Macro-Level Indicator scorefor Vietnam reflects the country's high economic strength and low institutional strength with a high susceptibility to event risk.

Industry risk: Market and regulatory overviewWe assign a B Industry Risk score for Vietnamese consumer finance companies.

Consumer finance companies in Vietnam adopt a high risk and high return strategies where they offer unsecured products to thelower income brackets of the population, at high interest rates compared to commercial banks. Expertise in underwriting, access todistribution channels and, to some extent, regulatory requirements are key barriers to entry. As such, Vietnam’s consumer financeindustry is internally concentrated.

This unsecured consumer finance market is dominated by consumer finance firms because local regulations do not allow commercialbanks to underwrite high-yield loans, because of high credit risks. However, commercial banks are able to enter the higher-riskconsumer finance market by establishing their own consumer finance subsidiary.

We estimate that Vietnam's unsecured, high-yield consumer finance market amounted to $5 billion-$6 billion as of year-end 2017.HCV was the second-largest consumer finance company with a 17% market share in terms of loans as of the end of June 2018, afterVPBank Finance Company Limited (B1 stable, b3).

HCV and other finance companies are regulated by the State Bank of Vietnam and are subject to minimum capital, funding andliquidity requirements. On capital, the rules are the same as for banks, while funding and liquidity rules are more relaxed becausefinance companies are not allowed to accept deposits from individuals.

Methodology and scorecardAbout Moody's ScorecardOur scorecard is designed to capture, express and explain in summary form our Rating Committee’s judgment. When read inconjunction with our research, a fulsome presentation of our judgment is expressed. As a result, the output of our scorecardmay materially differ from that suggested by raw data alone (though it has been calibrated to avoid the frequent need for strongdivergence). The scorecard output and the individual scores are discussed in rating committees and may be adjusted up or down toreflect conditions specific to each rated entity.

4 14 June 2019 Home Credit Vietnam Finance Company Limited: Update to credit analysis

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Rating methodology and scorecard factors

Exhibit 1

Rating factorsHome Credit Vietnam Finance Company LimitedFinancial Profile Factor Weights Historic Ratio Initial Score Assigned Score Key driver #1 Key driver #2Profitability

Net Income / Average Managed Assets (%) 10% - Aa2 Baa1 Expected trend Earnings volatilityCapital Adequacy and Leverage

Tangible Common Equity / TangibleManaged Assets (%)

25% - A3 Ba1 Otheradjustments

Expected trend

Asset QualityProblem Loans / Gross Loans (%) 10% - Ba2 B2 Rapid growth Expected trendNet Charge-Offs / Average Gross Loans(%)

10% - Caa1 Caa2 Expected trend

Weighted Average Asset Risk Score B2 Caa1Cash Flow and Liquidity

Debt Maturities Coverage (%) 10% - Caa2 Caa2FFO / Total Debt (%) 15% - Ba3 B3 Expected trendSecured Debt / Gross Tangible Assets (%) 20% - Baa2 B1 Other

adjustmentsExpected trend

Weighted Average Cash Flow andLiquidity Score

Ba2 B3

Financial Profile Score 25% Ba1 B1Operating EnvironmentHome Country Factor Weights Qualitative Scale ScoreMacro Level Indicator 0% Ba2

Economic Strength 25% High -Institutional Strength 50% Low +

Susceptibility to Event Risk 25% High -Industry Risk 100% BHome Country Operating Environment Score B2

Factor Weights Score CommentOperating Environment Score 75% B3ADJUSTED FINANCIAL PROFILE Score

Adjusted Financial Profile Score B3Financial Profile Weight 25%Operating Environment Weight 75%

Business Profile and Financial Policy Adjustment CommentBusiness Diversification, Concentration andFranchise Positioning

0

Opacity and Complexity 0Corporate Behavior / Risk Management 0Liquidity Management 0

Total Business Profile and Financial PolicyAdjustments

B3

CommentSovereign or parent constraint Ba3

Standalone Assessment Range b2 - caa1Assigned Standalone Assessment b3

Source: Moody's Investors Service

Ratings

Exhibit 2Category Moody's RatingHOME CREDIT VIETNAM FINANCE COMPANYLIMITED

Outlook StableCorporate Family Rating B3

Source: Moody's Investors Service

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