Pham Xuan Hoe, deputy director of Institute of Banking Strategy, the State Bank of Vietnam (SBV), had said so at the seminar ‘Re-start the economy opportunities for consumer finance’ organised by The Investment Press on May 21.
Referring to the time to promote consumer lending, Hoe estimated that informal consumer loans accounted for 15 percent to 20 percent of the total balance of the economy (1.16 quadrillion dong to 1.55 quadrillion dong). Consumer loans via banks and consumer finance companies reached about 1 quadrillion dong at the end of 2019, equal to 11.4 percent of total outstanding loans, in addition to other channels without official statistics.
As usual, the official consumer loan balance was about 40 percent of the total credit balance in the economy, so the geographical balance would be quite large, at about 1.5 quadrillion dong to 2 quadrillion dong, not including the annual total balance. Lending to the economy increased by about 14%, consumer loans would also increase.
According to Dang Ngoc Duc, director of the Institute of Financial Banking, National Economics University, the unmet need for consumer loans in the sub-standard group, in reality, was very large, very diverse and also very urgent.
When the provisions of Circular 41 were applied, it would be difficult for banks to lend, which created the basis for unofficial credit activities, especially shadow banking.
Thus, the demand for consumer loans was still huge when the consumption potential was assessed to be profitable growth. Besides, the proportion of customers with low incomes with the demand for consumer loans was statistically quite great being unable to access to commercial banks and financial companies. This fact showed that the supply had not met the demand for consumer loans, and the opportunity for the development of consumer credit was still huge, Duc said.
Vo Tri Thanh, an economist, said that the Covid-19 pandemic hindered the economy. However, Vietnam was a unique country thanks to the ‘thrifty’ culture of an emerging middle class, people who had jobs and income.
According to Thanh, equating personal consumption and personal lending was not appropriate, because the risk assessment would be different. Half of the personal consumption was real estate, in which investment and speculation were not small. The total lending at banks of real estate was nearly 20 percent in 2019, of which one third was the project investor and the rest was the customer.
According to Lawyer Truong Thanh Duc, Chair of BASICO Law Company, the fact that the demand for external loans was too great, which was proved by developing shadow banking. If customers switched to formal lending, there would be no reason to worry about the consumer finance market.
In that context, Dang Ngoc Duc proposed that consumer loans always faced high risks. It could be seen that consumer loans in developed countries, as well as Vietnam, were mostly unsecured loans.
The development of consumer loans in the near future required the participation of commercial banks, in which case, SBV needed changes, additions, and perfection to encourage banks to increase consumer lending when credit quality could be assured and balanced against loss.
According to Pham Xuan Hoe, it was necessary to urgently support 62 trillion dong to help the unemployed, wanting people to maintain their lives, along with disbursement of 16 trillion dong package with zero percent interest rate for enterprises to pay salaries.
After that, it was also alarming to stimulate demand to create jobs with a public investment package of 700 trillion dong. At the same time, consumer loans with small items, reasonable interest rates, and repayment periods needed to be longer than before. Also, personal financial education for workers, and mostly, the crime of usury, was essential to handle immediately. The State should soon force the removal of illegal lending apps, tracking and handling the type of ghost company.
