Consumer credit stands chances to develop in the near future

23-May-2020 Intellasia | Nhip song Kinh te | 6:02 AM Print This Post

Consumer lending products were often targeted at the low-income segment but were also vulnerable to economic shocks. Therefore, many people had doubts about the ability to cope with bad debts of post-Covid 19 financial companies and whether consumer credit was still the ‘golden egg’ as in recent years.

In early April, the Board of Members of Saigon Hanoi Commercial Joint Stock Bank (SHB) Finance Limited Company (SHBFC) unexpectedly issued a resolution to submit to the board of directors of SHB’s parent bank for approval via the annual general meeting of shareholders (AGM) on divesting capital at SHBFC to the foreign strategic partner. It was not clear whether SHB would relieve part or all of this capital. Still, this information was not surprising because SHB had many plans to develop the consumer credit segment by expanding this subsidiary network.

Recently, Moody’s also considered lowering the trust of three major financial companies in Vietnam. According to Moody’s, the economic shock caused by Covid-19 could negatively impact the quality of assets, profits, and liquidity of these financial companies.

Consumer finance companies had unsecured lending products and targeted low-income customers but were also vulnerable to economic shocks. The increase in unemployment was expected to weaken borrowers’ ability to repay debt in this segment, due to unstable and limited income.

Therefore, many people were doubtful about the ability to face difficulties due to Covid-19 of financial companies and whether consumer credit was still the field of ‘chicken laying golden eggs’ as in recent years.

Commenting on whether a financial company wanted to divest, Can Van Luc advised not to concern about that. The reason for the divestment might be because the bank changed its business strategy and wanted to focus on its main field. Or they tried to restructure, eliminate the risks that they did not accept because the consumer lending sector could also be said to be quite risky, and closely associated with the economic cycle. Hence, when these banks had the opportunity to sell, attracted buyers at reasonable prices, the divestment of profits in times of need for cash was the right time. Besides, they might sell, but would still participate in the form of shareholders, cooperation, or association.

Meanwhile, Truong Thanh Duc, a lawyer, also said that this was normal. When businesses did not do well or wanted to stop, they had the right to sell and dissolve following the law. The important thing was who the new legal entity was, how financial it was, whether it was transparent, whether there was a professional lending business, avoiding the acquisition or taking advantage of the backyard.

Truong Thanh Duc also said that this year, consumer finance companies would face difficulties, but in the coming years, there was still room for development. This year, the disease was severe, but in the next few years, this sector would still be a chicken with many golden eggs, he said.

However, experts said that financial companies, as well as other businesses, needed a post-Covid-19 change. Can Van Luc said that after Covid, companies were about to review their business strategies. Current thinking had been very different because of many new trends, new tastes, and new tailor-made products.

Financial companies must also pay more attention to technology platform development. Many companies still had manual and expensive management, leading to higher interest rates. The lender needed to balance the risks and interest rates, not the default of consumer credit, and the interest rate must be increased. If managed effectively, and operational burdens were reduced, it was still able to offer reasonable interest rates for people, growing sustainable relationships with people.

This expert thought that this field still had great potential, but the ability to attract investment depended on the State’s views. Can Van Luc said that the State should be more open to the new but controlled credit models. In the digital economy, so must new business models, including digital credit.

The expert said the first essential thing was a legal framework to control from the beginning. The other was to let it develop freely for a while, and then it would adjust to the framework. Currently, Vietnam was adopting the first form for pilot activities within the legal framework. That was an open and appropriate approach. He also emphasized, that was an important trend, including the digital economy, digital business models having strong momentum after the pandemic, which could not be deviated from the times.


Category: Finance, Vietnam

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