HCM City – Consumer loans have increased sharply in Ho Chi Minh City in recent years, said Nguyen Hoang Minh, Director of the State Bank of Vietnam’s HCM City Branch.
In 2012-16 they grew at 20-22 percent a year, he said.
At 250 trillion VND (11.01 billion USD) they make up 12.2 percent of the total outstanding loans of 2,000 trillion VND (88.1 billion USD) currently.
Data from the National Financial Supervision Committee shows consumer lending has risen by a whopping 58.6 percent this year.
As for the overall national figure, a report in July by Ban Viet Securities Company had estimated the market at nearly 600 trillion VND (26 billion USD) last year, or nearly 10 percent of the GDP.
Significantly, most consumer loans are given by finance companies, whose interest rates are usually much higher than banks’.
The four biggest finance companies, FE Credit, Home Credit, HD Saison and Prudential Finance, account for 84 percent of the market.
Consumer loans are mostly given for buying household goods and meet travel expenses, with mobile devices, vehicles and personal computers costing less than 2,000 USD accounting for a large proportion.
Experts said the high interest rates are because the companies’ cost of capital is very high.
This is mostly because their loans are small and often for short terms (averaging between 6 and 18 months), which makes each expensive in terms of debt collection and management and other related services.
Besides, the loans are highly risky since they do not require collateral.
Analysts attributed the rapid growth in consumer to certain reasons, one of which is the rapid change in people’s incomes and spending habits.
Vietnamese consumers are spending over 67 percent of their earnings ratio, and this is set to rise further as the economy picks up.
The fact that consumer lending procedures are very simple and no collateral is required are other reasons for their popularity, especially among the population segment that does not qualify for bank loans.
This segment finds consumer loans attractive to black market loans controlled by loan sharks.
But experts warned that the threat of bad debts is a constant one for banks and finance institutions.
Photo: CBR Investment AG