Potential risks of bad debts from consumer credit

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So far, only 51% of Vietnamese adults have credit information profiles

Mr. Do Hoang Phong, Director General of Vietnam National Credit Information Center (CIC), said that consumer credit was a common lending method in the world, but it only developed strongly in Vietnam in a few recent years. People were more interested in consumer credit. This is because the procedures were very simple. They only have to present their identification documents, such as ID card or household register and the disbursement time is fast, even in just a few tens of minutes. This procedure is suitable for the needs of many people, especially those who are in need of a small loan.

In spite of great potential in Vietnam, the consumer credit also has potential risks of bad debts. Consequently, the interest rates of consumer credit by finance companies are always higher than bank interest rates. By monitoring the report and information exploitation of credit institutions offering consumer credit during the past, Mr. Phong estimated that most of the institutions are aware of reporting credit information, attaching importance to the national credit information source and promoting the information exploitation from CIC.

However, Le Anh Tuan, Head of CIC Research and Development Office analysed that according to the statistics from World Bank (WB), only 51% of Vietnamese adults had credit profiles. Compared to developed countries in the world with credit coverage of approximately 100% of the adult population, the 51% of Vietnam is relatively low. Therefore, Tuan proposed that micro-finance institutions and voluntary organizations should actively cooperate to report data to CIC so that CIC can support to raise the coverage of credit information, and contribute to reducing risk in the loan activity.

In CIC, at the beginning of 2017, there were only 31.5 million borrowers whose information was updated to data storage, but so far, the number has risen to 34 millions, including credit information of 33.4 million individual customers and over 700,000 corporate customers.

For the group of 5 finance companies offering consumer credit, the number of borrowers is high, accounting for 3% of the total outstanding loans. These consist of 47% with small loans with average loans of VND 12 million per loan.This is much lower than the average outstanding loan of VND 286 million per loan for the group of 5 commercial banks, which account for 17% of total outstanding loans.

Notably, according to Mr. Tuan, there were finance companies, which had to amend credit information of customers for up to 94 times per month, and Home Credit Vietnam had to amend up to 44 times per month. This shows that companies need to complete their process of credit profiles more accurately and fully to avoid risks.

Mr. Tuan also pointed out the current status that Vietnamese people hold various types of identification documents, such as old ID cards and new ID cards, passports, and citizen cards. Each of these documents has a ID number, and there are situations where a person can borrow money in different places. Facing this situation, CIC has proposed that the SBV needs to cooperate with the Police Department of residence management and registration and national data on population (C72) under the Ministry of Public Security to identify the customers who hold various identification documents. CIC will then provide an authentication service that helps finance institutions to avoid fraudulent document papers in accessing consumer credit services.

Mr. Hoang Hung Ngovandan, IFC senior finance expert said that in recent years, peer-to-peer lending (P2P) platforms have become more popular with lending through online services. Global P2P loans in 2015 were US $ 26.16 billion.

Consumer credit: Still pending for potential exploration VCN- The consumer credit market in Vietnam still has many opportunities and potentiality for development. Therefore, it ...

In Vietnam, some P2P trading platforms were established such as HuyDong, Tima, and Fundstart. Although the number of P2P platforms in Vietnam is still low, according to Hung Ngovanan, if this is done properly, it will become popular in the future and be a formidable competitor in the consumer finance market. Therefore, a competent authority in charge of monitoring and managing these new participants to protect consumers’ benefits and data is necessary.