Consumer finance companies face risk of bad debt ratio increasing to 11pct

25-Nov-2021 Intellasia | Thoi bao Kinh doanh | 7:19 AM Print This Post

Deputy prime minister Le Minh Khai has assigned the State Bank of Vietnam (SBV) to preside and coordinatewith relevant agencies to urgently review press contents about the activities of consumer finance companies in order to timely handle according to their competence and in accordance with the law, ensuring the security and safety in operations of consumer finance companies, especially in the context of the Covod-19 epidemic, limiting black credit. The results shall be reported to the prime minister in December 2021.

Previously, on October 29th, VnBusiness’s article mentioning that Consumer finance companies have abundant source of capital and are in difficult to make investment, citing the opinion of the general Secretary of the Banking Association Nguyen Quoc Hung, in relation to the Covid-19 epidemic from the beginning of 2021 until now which have severely affected consumer finance activities. Although capital and assets increased, the business acitivities of the consumer finance companies in Vietnam have started to be hit by the Covid-19 pandemic, the total credit balance of this group almost recorded no growth compared to the end of 2020, reaching 129 trillion dong.

Notably, the bad debt ratio sharply rose from about six percent in late 2020 to an average of nine to 10 percent by late September 2021 and is expected to continue to increase towards the end of 2021.

This is because the low-income workers, employees, small traders, etc. finance companies’ customer segment is the group that most directly and severely affected by the Covid-19, especially in the second and third quarters of 2021 when the fourth wave of the epidemic broke out strongly.

Finance companies themselves also have problems in arranging staff to work at branches and transaction points, making it difficult for the collection of service fees and debts, settlement of bad debts, introduction of products, etc.

These factors have both had a great impact on the results of disbursement and debt collection, leading to overdue debts, high bad debts; and also limited the growth or even led to negative growth results. In addition, since the classification of debt groups, provisions for risks, compulsory provisions (according to Circular 01, 03 and 04) is significant and is currently done manually without a suitable software, there are many difficulties for employees of finance companies and errors are unavoidable in the process of identifying customer debt groups.

Regarding the measures to handle bad debts, finance companies have proposed the SBV to remove obstacles and inadequacies related to Circular 43, such as considering the bad debt ratio with a separate orientation for finance companies, according to an average level of finance companies and in line with the industry’s characteristics.

Noting the opinions of finance companies, a representative of the Credit Department of Economic Sectors under the SBV said that the Department is reviewing consumer finance activities to supplement and amend the current regulations if there are operational inadequacies and at the same time build an appropriate legal framework for digital transformation activities.

 

Category: Finance, Vietnam

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