Hanoi (VNA) - Consumer lending has the potential for explosive growth in Vietnam,but this can only happen with significant improvements in consumer satisfactionwith credit institutions and loan conditions, experts say.

Theysay that tapping this growth potential will boost national spending andeconomic growth. 

“Withinthe decade, market demand for unsecured loans has grown to adapt to the currentfinancial scene in Vietnam, with an increasing amount of retail lenders andpersonal borrowers,” Hoang Van Hai, Director of the School of BusinessAdministration (SBA), Vietnam National University of Economics and Business,said at a recent conference.

Hesaid the growth can be attributed to favourable legal and socio-economicconditions that have fostered changes in income and spending habits.

Atpresent, consumer loans in Vietnam range in value from 1 million VND to 60million VND (44.6 USD to 2,680 USD). The application process and repaymentschedule are fairly simple, and the rate of interest is reasonable atbetween1.49 percent to 1.6 percent per month, with the occasional zero percentfor smaller loans.

In2016, consumer credit was mostly used for purchasing household goods and travelexpenses, with a focus on mobile devices, vehicles and personal computers under2,000 USD. Sometimes, depending on the borrower’s credit history, capital isgiven directly (instead of paying purchase invoices).

Vietnameseconsumers are reaching a spending over earnings ratio of 67 percent, and thisis set to rise further as the economy picks up.

Haisaid that Vietnam will soon reach a purchasing market worth about 15 billion USDper year, with 30 million people in the 20 to 59 age bracket.

Thismeans more and more people in the middle income group are demanding capital tofund their immediate spending, without the hassle going through bank loans forsmaller purchases.

Underdevelopedsector

However,the central bank sees current retail lending as underdeveloped, given themodest number of credit institutions giving out consumer loans as also theoverall demand for such loans.

Thecentral bank estimates that consumer loans account for just five to ten percentof total lending in the country, as opposed to the average 40 to 50 percent indeveloped nations.

CanVan Luc, a senior advisor to the Chairman of the Joint Stock Commercial Bankfor Investment and Development of Vietnam (BIDV), said at an online conferencein March that Vietnamese credit institutions granting consumer loans have amere 1.78 billion USD in capital, about 0.7 percent of the credit sector’stotal.

Thisis due to the fact that these institutions are not allowed to take depositslike commercial banks, having to rely instead on bonds.

Thelack of capital, coupled with the reluctance among a majority of consumers toborrow, has lead to interest rates higher than the commercial banks’ average of0.9 to 1.2 percent per month, said Luc. 

However,consumer lending carries rich potential, especially among the populationsegment that does not qualify for bank loans. This segment can access thiscapital instead of being beholden to black market loans controlled by loansharks.

Whilethe central bank is positive about growth in this credit segment, there arestill regulatory issues that need to be resolved.

In2016, the SBV and the Ministry of Industry and Trade, received a large numberof complaints from borrowers.

TheVietnam Competition Authority (VCA) released a report last year in which theydetailed several major problems faced by consumers buying common household andelectronic items.

Achief complaint from borrowers was that cumulative calculation of interestrates made the loan repayment untenable in just three to six months. They alsosaid that the credit institutions did not show “decent conduct” while trying torecover loans.

TheVCA advised consumers to have a clear understanding of the loan contractsbefore signing and reevaluate their own disposable income before taking out aloan, no matter how small.

Meanwhile,the SBV has simplified procedures and increased transparency for consumer loansthrough Circulars 39 and 43 issued in 2016 and 2017 respectively.

Atpresent, the SBV considers a loan to be a consumer loan if it is made inVietnamese dong, the borrower is an individual, not an institution, the purposeof the loan is to meet personal spending needs, and the total amount borroweddoes not exceed 100 million VND (4,468 USD).-VNA