According to the State Bank’s report, as of the end of 2017, the total oustanding consumer credit increased 4.8 times, from about 230 trillion dong in 2012 to 1,100 trillion dong. The proportion of consumer credit also swelled from eight percent of the total oustanding loans to 17 percent in this period. Of which, 16 consumer finance companies operating in the market contributed 8.2 percent to the oustanding loans of the entire market in 2017.
Currently, the consumer finance market for customer group with medium and low income mainly concentrated in the hands of FE Credit, Home Credit, HD Saison and Prudential. Of which, FE Credit accounted for more than 50 percent market share, Home Credit and HD Saison reckoned for 38 percent and the remaining 12 companies shared the remaining 12 percent market share. The overwhelming of these four giants with nearly 90 percent market share may bring about the risk of concentrating, manipulating as well as limiting the choice of consumers.
When consumers have fewer choices, they will have to suffer from certain disadvantages. First, the disadvantage is in lending rates.
The average interest rates of consumer finance companies are currently ranging at 30-50 percent/annum, an interest rate that many consumers still consider as too high. Of course, this interest rate is still much lower than “black credit”.
Finance and banking expert Le Xuan Nghia said the market still needs to have the competition of many more finance companies to bring interest rates to a lower level.
According to Nghia, without competition pressure, consumer finance companies will not have motivation to cut operating costs and seek for cheaper mobilised capital.
High lending rates, of which, all are unsecured loans with no collateral, will lead to a much bigger risk, i.e. bad debt. It is impossible to deny that the current risk management is still being carried out quite well by finance companies. That is shown in the fact that the non-performing loan (NPL) ratio is still ranging at around five percent.
Specifically, at the end of 2017, FE credit had the NPL ratio at 4.6 percent compared to 5.2 percent for HD Saison and 3.7-4 percent for Home Credit. This NPL ratio is acceptable in the context that consumer credit of consumer finance companies is mainly unsecured loans with fast approval, more simplicity and high profits, enough to offset lost loans.
However, economists warn that in the long term, consumer credit still has much potential risks because of having no collaterals and being very sensitive to macroeconomic fluctuations.
The lesson about bad debts from sub-prime consumer finance in South Korea, Japan, etc. in the previous decades is probably still valuable.
Not too far ago, in 2008-2011 period, Vietnam economy had to suffer from serious impacts of “hot” growth during a long time at 30 percent/annum, mostly flowing into consumer credit and real estate. The consequence is that bad debt increased to more than 17 percent as of the end of 2012, leading to the collapse of many banks and the fact that many bad debts still have not been solved until now.
In the middle of May, the State Bank sent a written document to credit organisations, asking to reorganise consumer lending activity. This is considered as a warning to consumer finance companies against potential risks, in the context that many customers complained that they were not fully consulted when borrowing or even their debt repayment assessment is not true.
However, according to finance and banking expert Can Van Luc, it is impossible to limit consumer loans because of potential risks.
The most necessary method now is that the State Bank needs to continue completing legal corridor in the management of finance companies, especially regulations about safety standards as well as new products such as peer lending.
In addition, the nature of consumer finance is high risk and is largely affected by macroeconomic fluctuations. The State Bank also needs to have strict measures to supervise and manage to limit crisis in consumer finance sector when the economy shows signs of difficulty as it used to happen in Japan, South Korea and Japan.
Another measure is to create favourable conditions for new consumer finance companies to develop, in order to increase competitiveness and limit the monopoly of a few giants now. This will help reduce interest rates and increase the diversification in products and services, bringing about more benefits to consumers as well as the economy.
