Recently, Moody’s international credit rating agency had considered lowering the credit rating of three financial companies in Vietnam and two parent banks, which included the couples of Vietnam Prosperity JointStock Commercial Bank (VPBank) and FE Credit; as well as Saigon Hanoi Commercial Joint Stock Bank (SHB) and SHB Finance. Besides, Home Credit was also considered to lower the credit rating because Moody’s worried that Covid-19 epidemic could create a shock in the field of consumer finance.
According to financial experts, it was not unreasonable for Moody’s to consider reducing trust in consumer finance companies. Observing the example of VPBank and FE Credit, currently, apart from individual consumer loans through FE Credit, VPBank had also fairly focused on unsecured loans for small and medium-sized businesses (SME). The bank’s 2019 annual report said considering consumer finance segment, individual customers and SME contributed more than 66 percent to the company’s total profit before tax in 2019. Although FE Credit’s contribution to the structure of total balance accounted for only about 22%, it also contributed up to 43 percent of profit before tax to the parent bank.
However, in the context of a complicated disease situation, unsecured loans with high-profit margins were the ones with a high risk of bad debts in the coming months.
Experts at SSI Securities Corporation also stated that consumer credit activities in Vietnam in the short term would not be greatly affected. Because in the first phase, there were demands for loans from mass and low-income customers because customers still needed cash to cover living costs. But by stage 2, when the epidemic peaked, the income of low-income customers would be affected first. As a result, the borrower’s ability to repay the debt would decrease rapidly, leading to a higher risk of bad debt.
More specific analysis, Huynh Minh Tuan, director of Brokerage of Mirae Asset Securities Company, said that the proportion of cash loans and instalment loans to buy electronic equipment currently accounted for the highest percentage in financial statements. Borrowers were mostly self-employed, with an average income of over 5 million dong per person per month. Therefore, the increasing non-performing loan (NPL) in financial companies was undoubtedly due to the group of low-income customers with the debt repayment capability would not be large in the whole of 2020.
Although acknowledging that the pressure of bad debt on the financial institution was not too large because most of the units had strong financial potential and were supported by the parent banks both at home and abroad. Moreover, from 2018 to then, the growth rate of consumer credit in Vietnam had begun to slow down. During the period 2013 to 2017, the average growth rate of the consumer credit market was 59%, by 2018, it was only 15%.
In 2019, many units’ revenue had shrunk in the context of increasing competition in this segment with the entry of many foreign financial companies. While the situation of diseases was complicated, this year was likely to be a bad year for financial companies.
Record in the market showed that, at present, despite the reduction of credit rating, financial institutions in Vietnam were assessed as having better growth potential when the epidemic was controlled.
Viet Capital Securities Company (VCSC) stated that the ratio of consumer loans to the total balance in Vietnam was only about 11.4 percent in 2019. Therefore, the level of negative impact on the economy and the credit institution system would be not too high if credit institutions generated more bad debts because borrowers were affected by the disease.
However, VCSC also said that the joblessness of tens of thousands of workers could last from six months to one year, so this was the time when financial institutions and commercial banks had a large proportion of personal loans. It was necessary to immediately review the affected loans to consider rescheduling for 3-6 months to customers.
Many financial experts also warned that, if the disease continued to be complicated, the wave of consumer defaults might be triggered globally, and financial companies in Vietnam might also need to take the initiative in scenarios to cope. By then, according to the statistics of the Atlantis Financial Research Institute in Beijing, the rate of consumer defaults in some Chinese banks had increased as high as four percent compared to about one percent in the time before Covid-19 outbreak occurred. In other countries such as France, Switzerland, New Zealand, Nigeria and Australia, the ratio of household debt to the gross domestic product (GDP) was also at a great record.
In Vietnam, although the signs of an increase in bad debt among consumer credit groups were just beginning to show. However, in the context of complicated epidemics that were negatively affecting the employment and income of workers, it was necessary to develop scenarios to cope.
