Influenced by the Covid-19 pandemic, the income of a number of households and individuals declined, boosting the demand for consumer loans to maintain spending as usual. According to the State Bank of Vietnam (SBV), outstanding loans reached about 8.3 quadrillion dong, equivalent to 134 percent of GDP, in which business loans and personal loans accounted for 55 percent and 45 percent respectively. It can be seen that a large amount of capital is for individuals and households.
Financial statements of many consumer finance companies show that credit growth in the first quarter of 2020 of many companies was still quite satisfactory compared to the general picture of the banking industry, but the growth rate was not high as before. For example, HD SAISON said, outstanding loans in the first three months increased by 4.9%, higher than the plan. Outstanding loans for consumption of Mcredit by the end of the first quarter was over 10 trillion dong, a sharp increase compared to the outstanding loans of nearly nine trillion dong at the end of last year. For FE Credit, outstanding loans reached nearly 61.6 trillion dong, up 16 percent compared to the first quarter of 2019. Profit before tax was 918 billion dong, an increase of 20%.
Pham Xuan Hoe, deputy director of the Strategy Institute of SBV estimates that unofficial consumer loans accounted for 15-20 percent of the total outstanding loans of the economy (1.16-1.55 quadrillion dong). Consumer loans via banks and consumer finance companies reached about one quadrillion dong at the end of 2019, equivalent to 11.4 percent of total outstanding loans, in addition to other channels without official statistics.
Although the pandemic has a certain influence on the consumer finance market, there is still room for growth. Currently, consumer loans only account for 11.4 percent of the total outstanding loans of the economy, while in many countries, this figure is 40%. Thus, the room for developing consumer credit in Vietnam is still about 1.5-2 quadrillion dong and it will grow according to the increase of the total credit of the economy.
According to Can Van Luc, consumer loans in Vietnam, including loans for house purchase and home repair, account for about 19 percent of the total outstanding loans. However, consumer loans, excluding house purchase and home repair account for about 12 percent of total loans, lower than the average and much lower than China (21%). “Credit is expected to increase again, by the end of the second quarter will reach about 3.5-4%. By the end of 2020, credit growth is expected at 9-10%. If achieved, this will be a relatively high credit growth in the region,” said Luc.
Increased consumer credit contributes to domestic consumption and economic growth. Economic recovery is also an opportunity for consumer finance companies to regain its growth rate as in previous years. In fact, Vietnam’s consumer lending industry remains quite attractive to foreign investors as the average annual growth rate is up to 30%.
The SBV data shows that, in total consumer outstanding loans, the loans of financial companies only accounted for 7.7%. However, this group has relatively diverse consumer financial products and services, covering most of consumer demand, cash loans for home appliances, electronics, and motorbikes, fitness cards purchase, foreign language study, wedding, travel, and credit card issuance.
Recently, many foreign financial corporations have owned Vietnamese consumer finance companies, such as Shinhan Card, Lotte Card, Hyundai Card, and Shinsei Bank… Recently, Vietnam Maritime Joint Stock Commercial Bank (MSB) has finished negotiations with partners and waiting for approval of the transfer of chartered capital of FCCOM Finance to Hyundai Card Company. Earlier, Saigon Hanoi Commercial Joint Stock Bank (SHB) also shared it would divest from SHBFC to major foreign strategic partners.
However, at the present time, due to declining income, even losing jobs, many individual consumer loans are insolvent and potentially falling into bad debts. Therefore, consumer finance companies are forced to make large provisions and launch loan support packages from the second quarter of 2020. This is also the reason why Moody’s considered lowering the credit rating of three financial companies including FE Credit, Home Credit Vietnam, and SHB Finance and two banks Vietnam Prosperity Joint-Stock Commercial Bank (VPBank) (which owns FE Credit) and SHB (owns SHB Finance).
Notably, the capital mobilisation in the past few years has been quite positive due to the good operation quality of the financial companies, but started to face difficulties from the end of 2019. Therefore, in order to increase capital capacity, selling capital to major foreign strategic partners is considered a strategic step to take advantage of the deployment experience, management capacity and modern distribution channels of these partners.
Can Van Luc said that if there were measures to stimulate domestic demand, including domestic consumption, the possibility of consumer lending will grow faster. This factor is supported when Vietnam is optimistic with its ability to prevent epidemics and gradually restore social activities. In the near future, the government also needs to continue stimulating measures such as the disbursement of the security package of 62 trillion dong, boosting public investment (estimated at 700 trillion dong). Consumer finance companies should promote consumer loans with small items, reasonable interest rates, and longer repayment period than before.
