Confusion compounded by consumer finance apps

Nguyen Hoang Minh, head representative of the Vietnam Banks Association in Ho Chi Minh City, shed light on the current state of the financial sector in the country.

Confusion compounded by consumer finance apps, illustration photo/ Source: freepik.com

“A total of 70 per cent of consumer finance companies have reported being subjected to regulatory checks, with no conclusion reached as yet,” he said at a conference in Ho Chi Minh City earlier April. “The consumer finance sector in Vietnam is facing numerous challenges, including issues with debt collection activities, negative perceptions of legitimate companies, and a lack of direct regulatory oversight for debt trading companies.”

Currently, there are 16 licensed companies under the State Bank of Vietnam (SBV), while unlicensed apps have proliferated, causing adverse effects on legitimate companies, leading to confusion and misperceptions of legal financial services.

Even legally sanctioned consumer finance companies, which have been granted permits for management, are being conflated with illegal lending practices.

Lending and debt recovery activities in Q1 have shown minimal growth, with some financial companies experiencing a decrease in both lending and debt recovery. In contrast, during 2016-2022, financial companies demonstrated robust growth, with annual growth rates of 19-20 per cent.

Le Quoc Ninh, consumer finance chairman at the Vietnam Banks Association, also expressed concern about the challenging environment facing consumer finance companies, particularly after negative reports emerged about unlicensed finance companies. These companies are often not subject to the supervision of the SBV.

According to Ninh, recent issues with debt collection activities by certain consumer lending and pawnshop chains have resulted in investigations by law enforcement agencies, impacting the reputation of legitimate consumer finance companies.

“Many of these companies are now being associated with other types of consumer loans, and some are being mistakenly labelled as loan sharks,” Ninh said. “After local authorities launched a criminal investigation into two well-known debt collection companies, there has been a trend of individuals defaulting on their debts and evading payment. This trend is becoming increasingly prevalent across the consumer finance sector.”

In recent times, several commercial banks have started openly selling consumer loan debt, signalling the emergence of a debt trading market in Vietnam. This is deemed a positive sign, as credit institutions often sell off smaller debts, including consumer loans, to avoid the hassle of managing them.

Financial expert Nguyen Tri Hieu has recommended the establishment of a consumer loan debt trading exchange in Vietnam. While the country already has a debt trading market for businesses managed by the Vietnam Asset Management Company, there is currently no platform for trading consumer loan debts. Therefore, it is imperative that the SBV provides direction for such an exchange.

“Additionally, education on financial literacy should be provided to the public through mass outreach programmes to equip individuals with the knowledge and skills necessary to navigate the complexities of the consumer finance sector,” Hieu said.

Ngo Xuan Duy, legal director at the International Debt Trading Company of Vietnam, has highlighted legal issues for companies operating in the debt trading sector. While circulars issued by the SBV directly regulate credit financial institutions, there are no specific regulations for debt trading companies.

“We recommend a clearer legal framework that can regulate not only credit organisations but also debt trading companies. For example, we are unsure about what constitutes proper debt collection practices, such as making debt collection phone calls,” Duy said.

“We have also faced difficulties in litigation against delinquent borrowers in court. The perspective of the judiciary has not been favourable towards this segment, and debt trading companies have had to provide extensive explanations despite following the regulations.”

Duy’s remarks highlight the urgent need for a well-defined legal framework for debt trading companies in Vietnam. He has called for regulations that go beyond credit organisations and specifically address the unique challenges and complexities of debt trading. By providing clear guidance on debt collection practices and legal proceedings, a robust legal framework can support the growth and development of the debt trading industry in Vietnam.

Tran Thi Khanh Hien, head of Research at VNDirect, told VIR that the current challenging environment would likely deter foreign investors.

“This sector may face further obstacles in attracting foreign investors, owing to concerns surrounding the legal framework and economic instability. These challenges have the potential to limit growth and expansion in consumer finance companies across the country,” Hien said.

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