The consumer finance market this year is forecast to continue to face difficulties without making a breakthrough as a result of the unpredictable developments of the COVID-19 pandemic.

Last year saw the novel coronavirus (COVID-19) pandemic negatively impact the world’s economy and international trade, with interruptions in the global supply chain causing a slowdown to all economic, trade, and investment activities, whilst also reducing people's consumer demand.

The nation made up one of the few countries which was able to bring the pandemic under effective control, with the Vietnamese economy showing clear signs of recovery after nine months.

Despite this, according to figures compiled by the General Statistics Office (GSO), last year saw 101,700 enterprises suspend business operations for a definite period, or halt working in order to wait for dissolution procedures or to complete dissolution procedures, an increase of 13.9% compared to the previous year.

Of the local firms, the majority of enterprises have been forced to halt business operations, with many new or small companies dissolving as they are the most vulnerable to damage caused by the negative impact of external shocks.

This therefore led to employee's income being negatively affected last year, with more than 69% of staff having their income reduced, 39.9% of them having working hours reduced or removed from the work schedule, whilst 14% of workers were forced to temporarily stop or suspend production and business activities.

The decline in people's income impacted borrowers' demand for borrowing and debt repayment ability, thereby having a significant impact on the consumer finance industry due to finance companies operating in this field having a large number of customers, with most customers being middle or low income earners.

FiinGroup, a data collection and analysis organisation, reports that the figure regarding losses in the global consumer finance segment caused by COVID-19 is rather high, with revenue recording a drop of 25%, while bad debt increased by 100%, resulting in a fall of approximately 200% in profit.

In a report sent to the Prime Minister, Nguyen Thi Hong, the Governor of the State Bank of Vietnam, stated that in the event of no COVID-19 pandemic, the results of the handling of bad debts would have been conducted on schedule, although bad debt showed a drastic upturn due to the impact of the pandemic. In fact, amid the complicated developments of the epidemic, the majority of customers lost their ability to repay debts, with finance companies forced to make every effort to restructure loans and reduce interest rates for customers. 

Consumer credit anticipated to recover, but hard to accelerate

Moving forward, forecasts made by the HSBC Global Research stated that the year ahead will see the labour market continue to stagnate due to COVID-19, resulting in little improvement in people’s demand.

Dr. Nguyen Tri Hieu concurs with this viewpoint, saying that the consumer finance market this year would continue to face difficulties without making a breakthrough as a result of the unpredictable developments of the COVID-19 epidemic, even though the lending interest rate remains on a downward trend.

According to the FiinGroup report, following the "golden" period of 2014 to 2019, with a gradual growth rate of roughly 35% per year, the Vietnamese consumer finance market slowed down in 2020 and needs to take cautious steps this year due to the impact of the COVID-19 pandemic.

A representative of FE CREDIT stated that in the event the pandemic is not competently controlled, concerns regarding unemployment could rise and the ability of customers to repay debts would weaken.

Furthermore, amid drastic changes in consumer behaviour and trends after the pandemic, companies must be proactive in applying technology to their business activities, thereby building a financial ecosystem that is capable of meeting the needs of customers in a timely and effective manner.

Competitive pressure will ramp up with the new appearance of Fintech companies, which tend to have advantages over traditional banks and consumer finance firms. This represents both a challenge and an opportunity for financial companies to co-operate, whilst maintaining and developing the market.

Moreover, consumer loans are being encouraged by banks and finance companies with many preferential loan packages, although demand is not as high as expected due to consumers having to limit spending. Currently, many banks, as well as financial companies, have offered incentives to individual customers in need of capital.

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