Banks bet on consumer credit growth

Banks bet on consumer credit growth - illustration photo/ Shutterstock

The State Bank of Vietnam (SBV) has urged credit institutions (CIs) and consumer finance companies to promote consumer credit packages for the last four months of this year. This aims to make significant strides to offset the adverse impacts of the ongoing health crisis through lower loan interest rates, and fast and simple lending procedures in accordance with the law.

Lenders have been racing to boost lending activities, such as slashing lending rates, despite its impact on profit from their bread-and-butter lending activities.

According to the latest survey from the SBV, CIs have cut marginal interest rates and non-interest fees in the first half of the year to increase customers’ access to credit services. The loan terms and conditions are expected to be more relaxed with loans for production and business and credit card loans in the last six months of 2020.

However, CIs seem to tighten their requirements on collateral and credit ratings of customers to prevent from default risks. Funds allocated for real estate, securities, and consumer loans are among the most exposed to a variety of risks. In the first six months, CIs have met customers’ borrowing demands at a higher level than in the second half of 2019, with 88.7 per cent of CIs satisfying 75-100 per cent of loans requirements.

Experts believe that boosting consumer loans, thereby stimulating consumer demand, is one of the three primary economic growth drivers. In the context of limited production credit, many CIs have relied on consumer credit for growth.

For instance, Techcombank reaffirmed its prime focus on real estate and personal lending, in which home loan accounts for 44 per cent of the retail debt structure. Techcombank only focuses on groups with high incomes and good repayment ability. For instance, Sun Group and Vingroup made up for a total 70 per cent market share, thus, the bank has chosen them as major customers in the resort segment.

Not only Techcombank, since the start of the year, many banks have also promoted consumer credit growth, especially mortgages, cars or essential loans.

Some lenders have taken advantage of this unprecedented outbreak to grab a bigger market slice and strengthen their foothold, such as VPBank or MSB with their credit growth of 12 per cent.

Trinh Bang Vu, head of the Retail Business Division at Shinhan Bank Vietnam, told VIR that the South Korean lender would continue to specialise in offering preferential lending rates for customers in need of home loans, car loans, or consumer loans.

Another prominent South Korean lender, Woori Bank, also lays stress on providing services for home and car loans.

State-owned VietinBank, meanwhile, is ramping up its efforts to become foreign investors’ trusted companion throughout every step of their journey in Vietnam, and bring them satisfaction by providing the most professional banking experiences.

Can Van Luc, chief economist of BIDV Training School, said that during the economic recovery period, consumer credit will contribute to stimulating aggregate demand and supporting growth. “In addition, concerning the large demand for loans, there has been a rapid increase in usury. Therefore, developing consumer credit will limit and repel black credit,” he said.

Along with that, Pham Xuan Hoe, deputy director of the Banking Strategy Institute under the SBV said, “Shadow banking and loan shark activities are booming and damaging Vietnam’s socioeconomic development. Thus, the whole system is in urgent need of legal, high-ranking consumer finance firms and various lending services.”

However, promoting consumer lending is a tall order. By the end of July, the credit of the whole system increased by 3.45 per cent on-year, less than half of the same period last year. Nguyen Quoc Hung, head of the SBV’s Department for Credit of Economic Sectors, said that consumer credit and personal loans have grown in modest figures.

“In the coming time, the SBV will continue to encourage the promotion of consumer loans, but the amount of growth will depend on the absorption capacity of the economy. Currently, the demand for consumer loans is feeble in the context of unstable jobs and declining income resulting from the pandemic,” said Hung. “However, banks and consumer finance companies cannot churn out loans inconsiderately for fear of incurring bad debts.”

Nevertheless, the SBV is mulling over changing the roadmap for adjusting the ratio of short-term funds used for medium and long-term loans, which was previously mentioned in Circular No.22/2019/TT-NHNN issued in November 2019 on limits and prudential ratios of banks and foreign bank branches. The SBV had demonstrated its determination to tighten credit for risky sectors like real estate. High-risk borrowers such as build-operate-transfer project investors would also find it harder to access loans.