Consumer credit boom seen in Vietnam as economy recovers

Economy January 12, 2016 01:00

By VIET NAM NEWS
ASIA NEWS NETWO

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CONSUMER credit is expected to develop rapidly in Vietnam over the next five years, driven by rising demand from a recovering economy with a young population.



Dao Van Hung, a member of the National Financial and Monetary Policy Advisory Council, said there was huge potential for the development of consumer credit in Vietnam.
Financial firms and commercial banks providing this kind of service still largely ignore the outskirts of towns and rural areas, where there is a large number of people who don’t qualify for banking loans and who are potential customers for consumer credit.
The Vietnamese central bank’s statistics show that consumer borrowing accounts for 8 per cent of the economy’s total outstanding loans, which is modest in comparison with the regional average of around 20 per cent, and 40 per cent in developed financial markets.
The proportion is expected to rise to more than 15 per cent of total outstanding loans within five years, or an average annual rise of 20 per cent, promising a busy market with a diversification of consumer lending packages.
Truong Thanh Duc, chairman of the legal club of the Vietnam Banking Association, expects more finance companies under commercial banks to join the consumer-lending race in the coming years.
Vietnam now has only six companies specialising in consumer financial services, with several banks that provide this kind of service still failing to meet the demand.
Duc said consumer-lending procedures were more flexible and simpler than banking, and rising demand for consumer credit would fuel the boom.
He said interest from consumer lending remained higher than banking rates. This is understandable because it is difficult for finance companies to raise capital, while their lending costs are higher and loans are mainly trust-based.
As the market has not developed, risks remain high, Duc said, adding that the development of consumer lending would promote competition, which was expected to lower interest rates for consumer lending.
Still, experts say interest rates for consumer lending are much lower than for black credit. The development of consumer lending would bring a lot of benefits not only to consumers but also to the economy, they say.
Hung said consumer lending would promote purchasing and stimulate production and growth, and policymaking must be based on that approach.