Epidemic

As the economy has been hurt by Covid-19, laying off workers has occurred among enterprises in the fields of aviation, tourism, retail, and food and beverage. This has resulted in income decreases for many households and individuals and their ability to pay bank debts.

The Ministry of Labor, War Invalids and Social Affairs (MOLISA) reported that the number of redundant workers who applied for unemployment insurance compensation surged by 60 percent, or 48,000, in February compared with one month before.

The figure was 70 percent higher than the same period last year.

The redundant workers include borrowers from consumer finance companies.

The Ministry of Labor, War Invalids and Social Affairs (MOLISA) reported that the number of redundant workers who applied for unemployment insurance compensation surged by 60 percent, or 48,000, in February compared with one month before.

According to Huynh Minh Tuan from Mirae Asset, total outstanding consumer loans is roughly VND130 trillion, of which 50 percent, or VND65 trillion, is from FECredit.

This is a small proportion, about 1.4 percent, of total outstanding loans of the whole economy, estimated at VND9,000 trillion.

There are no statistics about the structure of consumer loans and borrowers’ trading purposes, but analysts believe that the loans in cash and electronic products account for the highest proportion, and most borrowers are freelancers with monthly average income of over VND5 million.

“The figures show that bad debts will surely increase under the impact of the pandemic because the income of most workers will decrease,” Tuan said.

However, according to Tuan, the pressure on consumer finance companies won’t be too high, because the companies always prepare for ‘stress test’ scenarios. In other words, it will depend on the companies’ risk management system.

Besides, most consumer finance companies with the largest market shares in Vietnam, including FE Credit, HD Saison and foreign companies from South Korea and Japan, have good financial capability and are backed by holding banks.

Circular 18

The circular, which took effect on January 1, 2020, stipulates that finance companies have to reduce the proportion of cash loans to 70 percent of total outstanding loans, commencing from early 2021. The proportion will be lowered to 60 percent in 2022, 50 percent in 2023 and 30 percent in 2024.

With the new regulation, finance companies will have to diversify their lending portfolios to maintain growth and profit. It will affect the companies’ revenue as Fitch Ratings estimated that cash loans accounted for half of total outstanding loans of the three largest Vietnamese finance companies in 2018.

FE Credit and Home Credit are the two biggest lenders in cash. The cash loans at FE Credit accounted for 73 percent of their loans in late March 2019, and for Home Credit, 58 percent in late 2018.

Kim Chi 

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