Despite many troubles and prejudices, consumer credit in Vietnam has the prospect of gradual development in quality to overcome the state of “second-class citizen” in the economy.
Only booming for three recent years, consumer credit in Vietnam is still new. Initially, lending rates amounted to 30 percent/annum, even higher. And, recent troubles may create less sympathetic view in the market.
Even in the system, some commercial banks have asserted not to involve in this segment because of risks and concerns about bad reputation.
However, many members are still carrying out and constantly expanding. And in the future, expectations about positive moves are realistic.
At the beginning of this week, representatives of some investment organisations have gradually contacted with leaders of Vietnam Prosperity Bank (VPBank) the member that is having the largest credit market share in Vietnam with the subsidiary FE Credit.
They want to study more specifically about newly emerging information about lending and debt settlement at this institution. And with a series of documents requiring adjustments from the State Bank, whether upcoming policy on consumer credit will be tightened or not, how is its potential and prospect.
Investors have reasons to wonder because for a long time now, consumer credit in Vietnam has the fate as a “second-class citizen”.
“Carrying out consumer credit in Vietnam is shaky. It may encounter policy risk such as the interest rate ceiling mechanism for 2010 period. If outstanding loans increase, there often results in concerns about capital flowing into “non-production” areas as it was before. In general, it is not as normal as conventional credit”, a member told VnEconomy.
Looking back nearly 10 years going up and down of Vietnam consumer credit, it has never had a place of honour in the macroeconomic policy making while this is a driving force for demand in the economy, stimulating output for businesses and supporting growth.
According to participants in the aforementioned meeting, over the last many years, Vietnam has developed an economy that is in favour of supply, based on production, export, public investment, government spending, etc.
“There is nothing wrong with it but I do not see a worthwhile focus on consumer momentum. We focus on production, supporting production but purchasing power and consumption power of the people will decide. Like in the United States, this factor accounts for about 70 percent.
Or in the U.K, French, etc., many banks have outstanding loans, individual loans of 70-80 percent, and only investment banks focus on corporate loans. This structure is opposite in Vietnam, mainly lending businesses towards that supply-oriented direction”, said the aforementioned member.
In his opinion, consumer credit in Vietnam seems to be obsessive and sensitive.
The biggest obsession is in interest rates, which are always exceptionally high. Like now, many members are applying the interest rate of 30 percent/annum, even 50 percent for unsecured consumer credit.
Such too high interest rate leads to debt payment pressure, bad debt issue, debt collection and even social prejudice when it is considered to easily push people into debt.
Despite the aforementioned meetings, Nguyen Duc Vinh, CEO of VPBank further explained to investors about reasons why consumer credit has always been exceptionally higher than usual.
First, finance companies have to mobilise capital at very high interest rates compared to normal commercial banks where input cost is high.
Second, the system operation cost is high. For example, to lend 100 billion dong, finance companies must handle tens of thousands of fees, and need thousands of personnel and agents.
Third, this is unsecured loan, the risk is much higher than normal (unlike home loans, home repair, car loans which are consumer loans but with collaterals).
“Take a relative calculation, capital cost is 10 percent, operating cost is 10 percent, risk cost is 10 percent, then there must lend exceeding that 30 percent to have opportunity to make profits. The gap between profit and loss here is very fragile”, said Nguyen Duc Vinh.
However, the VPBank CEO expects that consumer credit will have quality changes in the future.
That is, technology platform is the key for units to increase investment and application, which both supports operation management and controls risks better while gradually minimising medium and personnel factors, thereby reducing input cost and lowering lending rates.
For example, at FE credit, in the first three months of 2018, as many as 1.1 million loans were disbursed at an average of more than 10,000 loans per day. Being unable to appraise and carry out that object following traditional way, technology and data analysis system, automatic credit scoring system has gradually been applied and supported.
Consumer credit in Vietnam is expected to surpass the status of “second-class citizens” and has a worthy position in macro policy planning such as regular lending coupled with consumer demand of the people a motivation for production and economic growth.
Accordingly, many credit organisations participate more strongly in this sector, increasingly supply-demand relation, operation and product quality, and interest rates are expected to improve as competition increases.
In fact, CEO of VPBank said when the people’s life improves, it will gradually make a shift in customer quality, their standard and credit scores will improve, be less risky and lending rates also have more bases to decrease.
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