Though Vietnam’s outstanding consumer credit almost tripled over the last decade, its share of total outstanding loans is yet to keep pace with that of its regional nations.
There is plenty room for improvement in the time to come, industry insiders have said.
|Illustrative photo. (Source: baodautu.vn)|
According to the State Bank of Vietnam, total outstanding consumer credit stood at 1.8 quadrillion VND (78 billion USD) as of the end of 2020, accounting for about 20 percent of Vietnam’s total outstanding loans.
Consumer credit has grown at an annual average of 20 percent over the last five years and 2.5-fold since 2012.
The consumer credit market has seen enormous development over the last 10 years, according to Dr Can Van Luc, a member of the National Fiscal and Monetary Policy Advisory Council.
The sector has provided the economy with more capital to expand consumption, boost domestic production, and prevent loan-sharking, he said, adding that it has also helped develop cashless payments and financial inclusion.
It has provided a necessary push to the production of consumer goods, economist Le Xuan Nghia said. Though domestic consumption is yet to be the main contributor to economic growth, in the long run, it should be turned into a major growth engine, he added.
Data from the BIDV Training and Research Institute shows that, excluding real estate loans, consumer credit only represents around 8.7 percent of the country’s total outstanding loans, far below the 15-35 percent seen in regional countries such as Malaysia, China, Thailand, Indonesia, and the Republic of Korea.
Consumer credit even accounts for as much as 40-47 percent of total outstanding loans in some countries, he said, emphasising the need for solutions to further expand consumer credit in a bid to stimulate the domestic market.
Despite the market posting robust growth in recent years, it fails to match the potential in Vietnam with its population of nearly 100 million people, 60 percent of whom are low- and middle-income earners. Annual growth should be double or triple the current rate, according to FE Credit CEO and Vice Chairman Kalidas Ghose.
There are five major opportunities for the market to thrive in the time to come, Luc said, with the first being the economy’s bright outlook. Vietnam’s GDP growth is forecast at 6.5-7 percent annually and income per capita is likely to rise 6 percent each year between 2021 and 2030.
Secondly, the government’s continued implementation of aid packages for people and businesses affected by COVID-19 is driving up consumption demand, providing room for the expansion of consumer credit.
Thirdly, lenders are paying more attention to developing retail banking and individual borrowers, and fourthly, there has been a major change in the way people shop over recent years, coupled with Vietnam’s rising middle class.
Finally, the ongoing digital transformation process has facilitated the creation of a wide range of new products for the consumer credit market, providing customers with a better experience.
Three companies are dominating the consumer lending market in Vietnam, with FE Credit, HD Saison and Home Credit firmly on top.
Vietnam currently has 16 finance companies, including six fully foreign owned ones.