Live roundtable talk on consumer finance
The live roundtable talk held by Vietnam Investment Review is
discussing the significant growth of consumer finance in Vietnam and its
potential, obstacles, as well as the solutions to enhance consumer finance
services.
"Roundtable
on consumer finance: looking for an opportunity in a $26.5 billion
market "
This morning (July 12),
Vietnam Investment Review hosted a roundtable talk focusing on
the amazing developments of the consumer finance market in recent years.
A $26.55 billion market
Opening the roundtable talk, VIR's editor-in-chief Le Trong
Minh affirmed that Vietnam, with a population of 95 million and enormous
consumer demand, possesses advantageous conditions and enormous market for
the development of consumer finance.
According to StoxPlus’s
report on the consumer finance industry in 2016, the market has witnessed
amazing leaps in recent years.
Particularly, total
outstanding loan of the Vietnamese consumer finance industry went from $7.3
billion in 2012 to $26.55 billion in 2016. While consumer finance sector
still only accounts for a small portion of the GDP (9.8 per cent by the end
of 2016), the segment is recording incredibly fast growth.
According to Dr Can Van
Luc’s latest report in 2016, the consumer spending accounts for 78 per cent
of the total GDP, tantamount to VND3.8 million billion ($167.1 billion).
Therefore, each percent increase in consumption equals to VND38 trillion
($1.67 billion) in the economy-a number that can help Vietnam reach the 6.7
per cent GDP growth target in 2017.
However, there are issues
following the quick growth of the consumer finance market. This is the reason
why VIR holds the roundtable “Developing Consumer Finance - Opportunities to
Foster Consumption and Economic Growth.”
Challenges for state agencies
Representative of state agencies, Nguyen
Tu Anh, deputy director of the Monentary Policy Department of the State
Bank of Vietnam (SBV), said that consumer finance has largely contributed to
economic growth, as its proportion of Vietnam’s GDP is getting bigger (78.34
per cent in 2016). In Asia, Vietnam is one of the countries with the highest
portion of consumer finance in the total GDP.
With more than 95 million
people, 70 per cent of whom are aged 15-64, and an economic growth rate of 6
per cent, the Vietnamese consumer goods sector is very attractive. Over the
last ten years, a wide range of famous international retailers have entered the
Vietnamese market, such as Circle K, Shop & Go, FamilyMart, BigC,
Fivimart, and Citimart, and also, numerous domestic retailers are growing
strongly, like Vinmart, Coopmart, and Mobile World.
According to Nguyen Tu
Anh, over the last five years, consumer finance in Vietnam has grown
outstandingly, and this growth originates from both demand and supply.
However, the boom of consumer finance is also a challenge for state agencies.
The 2003 credit card crisis in South Korea is a clear example of the risks from
rapid growth of consumer finance.
Since 2016, the SBV has
issued two important circulars, Circular No. 39/2016/TT-NHNN and
Circular No. 43/2016/TT-NHNN, to adjust financing activities, including
consumer finance. These regulations not only facilitate consumer finance, but
they also protect borrowers from high credit risks by strictly regulating
transparent interest rates and detailed loan limits.
However, Tu Anh added
that Vietnam should have more regulations to protect borrowers, as it means
protecting credit institutions. The case of South Korea is an example. South
Korea faced a crisis of credit cards in 2003 because its banking system had
over-promoted consumer finance in 2000.
“The consumer finance
market will strongly develop in Vietnam. Customers of consumer finance will
increase, and farmers as well as other people with little knowledge about
laws and finance, may be easily hurt by competition in consumer finance. This
requires more strict regulations to protect borrowers and their legal
benefits,” Nguyen Tu Anh said.
In Singapore, borrowers
can resort to a lawsuit if lenders illegally ask for their money back.
Borrowers, when in trouble with paying off debts, can negotiate with lenders
for other ways to pay.
Bank and consumer finance interest rate
disparity
Pham Xuan Hoe, deputy director of Banking Strategy
Institute of the State Bank of Vietnam, said that while the interest rate of
consumer finance companies seems quite high at first glance, it is important
to consider the differences between the nature of consumer finance companies and
banks.
For a start, consumer
finance companies have a vastly different clientele from regular banks,
consisting mostly of people unqualified for banking loan risk assessment,
ranking in a higher risk level.
Second, the higher risk
level leads to higher risk premium. Consumer finance companies also
frequently offer small loans without collateral for home appliances,
motorbike or emergency spending, all the while using quick and convenient
procedures.
Third, unlike commercial
banks, without the capital from deposits, consumer finance companies have to
operate on capital from equity, bond or loans from commercial banks.
Finally, operating costs
accompanying each loan is quite high. Since short-term, small-value loans
incur the same costs for procedures, such as evaluation and filing, consumer
finance companies have to use higher interest rates to make up for the
expenses.
Hoe also recommended a
number of ways to improve the consumer finance market: promoting a more
accurate view of consumer finance, implementing financial education at
schools, and using BigData on judicial records to keep accurate credit score.
Warnings against black market consumer
finance
Economist Dr Le Xuan Nghia said
that the growth of consumer finance has reduced black market borrowings.
However, the 70 per cent portion of consumer finance in the total GDP is too
high, while the amount of savings is low. Besides, the fact that consumer
finance in Vietnam is proportionally higher than in many European countries
and the US is abnormal. Thus, Vietnam should develop consumer finance with
strict regulations on registration, accounting, tax, monitoring, and other
fields.
Dr Le Xuan Nghia said
that related agencies should review the achievements of the consumer finance
market from last year.
In particular, most
borrowings in Vietnam were taken up to finance home and car purchases, but
some real estate corporations let their employees borrow to purchase their
products. This does not really create liquidity for the market. Thus, without
close monitoring, consumer finance will be used for the wrong purposes.
Borrowers lack circumspection
Lawyer Truong Thanh Duc, an
arbitrator of Vietnam International Arbitration Centre (VIAC) cum chairman of
Basico Law Firm, agreed that consumer finance partly reduced black market
borrowings.
In particular, there are
three main channels for consumer finance: pawnshops and borrowing from
the black market, People’s credit funds and commercial banks, and financial
institutions. Except for pawnshops and the black market, all these channels are
legal. Borrowing from the black market is a persistent problem, while
commercial banks provide consumer finance with strict regulations. Thus, it
is necessary to develop financial institutions, especially as the competition
among financial institutions is not significant. In Vietnam, there are about
five or six financial institution providing consumer finance and only three
or four of them have strong operations worldwide.
Truong Thanh Duc
encourages borrowers to be careful when approaching consumer finance
services. Customers who did not read their contracts carefully or did not
understand every point may feel cheated when under the pressure of a hefty
debt all of a sudden. Interest rates, maturity, conditions, and calculation
formulas are clearly stipulated in the contracts, but many borrowers do not
care to read them carefully. As a result, when they find themselves paying
higher interest than previously expected, they might feel cheated.
Potentials of Vietnamese consumer finance
market
Dang Thanh Hung, general director of FE Credit Marketing
Centre, said, “We believe that this market’s growth rate will remain high and
as Vietnam has a young population, consumer finance in Vietnam has much room
to develop.”
He added, “FE Credit
focuses on working-age customers in the low and middle income segment, most
of whom may be workers or small retailers and fly under the radars of
commercial banks. Without FE Credit, most of these customers would resort to
the black market. With more reasonable regulations, such as the Circular No.
43, the limits of consumer finance have increased by VND10-100 million
($440-4,400) for each loan and FE Credit offers various kinds of loans, such
as loans for cash, loans for mobile phones or car purchases.”
Dang Thanh Hung said that
FE Credit has the greatest variety of products among all consumer lenders at
present. Besides, it has more than 1,000 salespeople, cooperating with 5,500
partners at many electronics or mobile phone selling points.
“We are confident
that we will enhance our position in the coming period,” Hung said.
By Trang Vu, Trung Nguyen and Tom Nguyen, VIR
|
Thứ Tư, 12 tháng 7, 2017
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