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Banks not interested in consumer credit
Experts have urged banks to push up consumer credit now, when there are signs of deflation, as consumer credit can help stimulate demand, thus helping push up production and economic growth. However, banks seem to be indifferent to this service.
Consumer credit low
In developed countries, consumer loaning brings the biggest profit to credit institutions. In Vietnam, most credit institutions have been providing consumer credit for the last ten years, including some finance companies specialising in consumer loaning and four finance leasing companies that lease assets to serve consumption.
However, statistics show that consumer credit remains underdeveloped in Vietnam. According to the State Bank of Vietnam, outstanding consumer loans have reached VND79,700bil, just 6.54% of total outstanding loans.
The figure represents an increase of VND1,056bil compared to December 31, 2007, but a decrease of 1.03% in the ratio to total outstanding loans. This spells that the outstanding consumer loan of every Vietnamese person is just VND921,000, a very low level for a country with more than 80 million people and one of the highest economic growth rates in the world.
Unsuitable interest rate is the key
In fact, bankers really want to expand consumer credit. In 2006, a bank reportedly decided to spend $2mil to launch a programme on pushing up consumer loaning with the ambition of creating a new consumer trend among Vietnamese people.
However, the programme has been cancelled this year for many reasons. Firstly, as commodity prices have skyrocketed, people have had to tighten their purse-strings. Secondly, banks face high risks in consumer credit as the national economy has been facing big difficulties. This has prompted them to focus on credit safety rather than credit expansion. And thirdly, the legal framework for consumer credit is still not completed.
When asked if they plan to resume consumer credit, banks all say that they do not intend to push up consumer credit right now.
And the reason is the unsuitable interest rates. The general director of a bank in Hanoi said: “No one can provide loans to fund consumer demands with such low interest rates. The suitable rates for consumer loaning must be 25-30%.”
The director said that banks need to give loans at high interest rates to cover the high risks in consumer loaning. Meanwhile, under the current laws, the ceiling lending interest rate is 19.5% per annum (the lending interest rate must not be higher than 150% of the basic interest rate).
Other bankers share the same view, suggesting that the State Bank of Vietnam apply specific interest rates for consumer credit.
The banks have also complained about the lack of information on clients, which also makes them hesitate to provide loans. Vietnam is lacking centres which have databases about individual clients, households and small- and medium-size enterprises. That explains why banks have only been providing credit for clients who are state employees and staffs of big corporations. The salaries of the clients, which are paid through the accounts opened at the banks, are used as guarantees for the loans.
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