The consumer finance market is growing rapidly

According to Can Van Luc, chief economist of BIDV, consumer loans in Vietnam accounted for 17 percent of total outstanding loans in 2017, of which outstanding loans of finance companies amounted to 8 percent (the figure is 34 percent in ASEAN-5 and 20 percent in China).

There are 16 consumer finance companies which serve 30 million customers. Four largest companies, namely FE Credit, Home Credit, HD Saison and Prudential Finance, alone control 90 percent of market share.

In the last five years, consumer finance has helped improve the people’s capability of accessing official credit and reduce ‘black credit’. 

In 2012, the consumer outstanding loans were VND230 trillion, or 8 percent of total outstanding loans of the national economy. The figure had increased by five times by the end of 2018 to VND1,100 trillion, accounting for 17 percent.

The most important role of consumer finance service providers is to market finance services among the community, thus diversifying groups of customers, especially those aged 18-30 with monthly average income of VND5-10 million and low-income earners who account for over 80 percent of the population.

According to finance analysis firms, the NIM (net interest margin) in the consumer lending sector is 20 percent, or 5-7 times higher than commercial banks. This has prompted commercial banks to jump into the sector.

However, the risks in the sector are relatively high, which explains why the lending interest rates are always high. 

According to Nguyen Tu Anh from the State Bank (SBV), consumer lending bears high risks from many factors, including recessions, interest rate fluctuations and changes in the business environment. These may affect the payment capability of borrowers, and therefore, the business efficiency of lenders.

Meanwhile, this is a new business field in Vietnam and lenders do not have much experience in risk management, and borrowers do not have in-depth knowledge about interest rate policies. 

Many borrowers have complained that they were deceived by lenders as the interest rates turned out to be higher than they had thought.

On May 15, SBV released Document 3436, requesting credit institutions and foreign banks to rectify consumer lending to prevent fraud and violations of the laws. 

The document was released just days after the Document 1366 in which the State Bank requests credit institutions to strengthen the safety of the finance system and ensure borrowers’ interests.

SBV’s inspection agency recently announced a plan to inspect a consumer finance company following complaints about the company’s violations of laws and a proposal from the Competition Administration Department.

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Lich Nam