VietNamNet Bridge – “Hybrid credit”, which shares characteristics of both bank credit and black-market credit, is becoming more common in Vietnam.

“The Poor Pay More”, a book by David Caplovitz published in 1967, showed that the  poor had to pay higher than the rich for the same goods and services. The rich can access official loans from banks with preferences. The poor have to borrow money in the black market at exorbitant interest rates.

But now they can also access official capital sources, the finance companies. However, the companies charge higher interest rates than banks.

Analysts commented that the hybrid credit market is booming in Vietnam because of the increasingly high number of people who have demand for consumer loans and the potential number of customers for hybrid credit service providers.

In general, commercial banks do not welcome people who cannot prove their real income levels and do not have collateral for loans. They are too high risk. However, finance companies consider them to be good customers. They accept the high risks that banks do not accept, and provide loans at  interest rates higher than bank interest rates, but still lower than interest rates in the black market.

A banking expert said that the average interest rate of the loans provided by finance companies is 50 percent per annum, while the consumer loan interest rate offered by banks is no more than 20 percent.

Do Thien Anh Tuan, lecturer of the Fulbright Economics Teaching Program (FETP), also said that though the nominal interest rate announced by finance companies is just 25 percent on average, the real interest rates borrowers have to pay are much higher, depending on the ways the credit packages are designed.

Analysts have every reason to say the consumer credit market is getting closer to the boom time. The players in the market all now can enjoy high growth in both outstanding loans and profits.

a 2013 finance report showed that Home Credit’s post-tax profit in the year increased by 4.5 times, while credit grew by 86 percent over 2012.

Meanwhile, Prudential Finance reported increases of 44 percent and 14 percent for post tax profit and outstanding loans, respectively, in 2013.

The increasingly high consumption demand is behind the high profits for consumer loan providers. Commercial banks have also reaped benefits from consumer lending. VP Bank, for example, has reported a sharp increase of 43.74 percent of outstanding loans provided to individual customers in 2013.

StoxPlus, a finance media firm, even believes that finance companies now earn more money than banks. The ROE (return on equity) of finance companies in 2012 was over 10 percent, while the figure was 5.1 percent only for commercial banks.

StoxPlus estimated that the consumer lending market had a value of $8.8 billion by the end of 2013, an increase of 15 percent over 2012, if counting the loans to fund house purchases. If only counting the total value of the loans provided by finance companies, the figure would be $680 million by the end of 2012.

NCDT