Consumer credit boom expected in next five years

Hanoi (VNA) - Consumer credit was expected to develop rapidly in Vietnam in the next five years, driven by rising demand from a recovering economy with a young population.

Dao Van Hung, member of the National Financial and Monetary Policy Advisory Council, said that there is huge potential for development of consumer credit in Vietnam.

Financial firms and commercial banks providing this kind of service still largely ignore the outskirts and rural areas, where there are a large number of people who don't qualify for banking loans, who are potential customers for consumer credit.

The central bank's statistics showed that outstanding consumer loans account for 8 percent of the economy's total outstanding loans, which is modest in comparison with the regional average of around 20 percent and 40 percent in developed financial markets.

The percentage is expected to rise to more than 15 percent of the total outstanding loans in the next five years, or an average annual rise of 20 percent, promising a busy market with a diversification of consumer lending packages.

According to Truong Thanh Duc, Chairman of the legal club of the Vietnam Banking Association, more financial companies under commercial banks are expected to join the consumer lending race in the coming years.

Vietnam now has only six financial companies specialising in consumer financial services, with several banks which provide this kind of service still failing to meet the demand.

Duc said that consumer lending procedures are more flexible and simpler than banking, and coupled with rising demand for consumer credit will fuel the boom.

According to Duc, interests from consumer lending remain higher than banking rates. This is understandable because it is difficult for financial companies to raise capital, while their lending costs are higher and loans are mainly trust-based.

As the market has not developed, risks remained high, Duc said, and added that the development of consumer lending will promote competition, which is expected to lower interest rates with regard to consumer lending.

Still, experts said that interest rates from consumer lending are much lower than black credit. The development of consumer lending will bring a lot of benefits not only to the consumers but also to the economy, they said.

Hung said consumer lending will promote purchase, stimulate production and growth, and policy-making must be based on that approach.-VNA