The development of consumer lending is still facing many challenges as many consumer debts have become bad debts.

At a recent seminar on the healthy development of consumer credit, the Deputy Governor of the State Bank of Vietnam (SBV) Đoàn Thái Sơn said criminals were now taking advantage of the social networks to organise groups to spread details on how not to repay consumer debts to credit institutions and consumer finance companies.

Mai Thị Trang, Deputy Director of the SBV’s Monetary Policy Department, noted the situation had caused many consumer credits become bad debts, leaving difficulties for credit institutions and consumer finance companies.

In addition, it is difficult to promote consumer lending as it is hard for borrowers to prove the purpose of capital use and the ability to repay consumer loans, which are often urgent, according to Trang. Customers of consumer credit are often low or middle income workers with no collateral, so credit risks and lending interest rates are higher, potentially causing bad debt risks.

The SBV will continue to direct credit institutions to concentrate capital resources and to promptly and fully meet people's legal loan needs. It will also continue to promote the application of science and technology, develop online lending and payment services, associated with reform of administrative procedures and simplify loan procedures, so that customers can easily access official credit capital with reasonable interest rates.

The SBV will also continue to review and complete regulations on lending activities.

Consumer credit has reached about VNĐ2.8 quadrillion, equivalent to 20 per cent of the total outstanding loans, while 16 credit institutions, which have large consumer loans, have introduced to the market more than 30 consumer credit products.

According to financial and business information service company FiinGroup, Việt Nam's consumer finance market encountered its toughest year in 2023, experiencing a 9.1 per cent year-on-year decline in loan book growth. This downturn was driven by economic slowdowns, reduced credit demand, worsening borrower credit quality, challenges in debt collection and stricter lending practices.

Finance companies saw pre-tax profits plunge by VNĐ3.62 trillion last year, continuing a downward trend which started post pandemic in 2020. The decline was due to reduced interest income and higher provisions for loan losses, reflecting deteriorating borrower quality.

However, FiinGroup’s analysts believe that 2024 will open a new period of credit growth, including consumer credit. After seeing a notable downturn in credit growth driven by deceleration in domestic consumption and slow export-oriented manufacturing last year, a recovery in credit growth will be more evident in the second half of 2024, supported by globally relaxed monetary policies and a domestic environment with lower interest rates, stronger export and import growth, along with improved consumer demand. — VNS