Promoting domestic consumption: Motivation from consumer finance

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After the Covid-19 pandemic, there are many opportunities for consumer credit.

The advantages for development

The domestic market of our country is always considered to have high potential due to its large and young population. According to estimates by the State Bank (SBV), consumer lending through banks and consumer finance companies reached about VND1 trillion by the end of 2019, equaling 11.4% of outstanding loan total. The official consumer loans are about 40% of the outstanding credit of the economy. Meanwhile, unofficial consumer loans are estimated to account for 15-20% of the outstanding loan total of the economy (VND1.16-1.55 million). So, this is a huge space for consumer finance companies to continue developing and expanding the subject of lending.

However, due to the effects of the Covid-19 pandemic, especially during the period of social distancing, credit growth has been very low compared to other years, including consumption credit. Moreover, the current situation of non-performing loans of banks and financial companies tends to increase, so stimulating consumptionfinance faces many difficulties.

However, according to experts, Vietnam's economic development prospects are still brighter than other countries, so the space for consumption finance is still large. Assoc. Prof. Dr. Dang Ngoc Duc, Director of the Institute of Finance and Banking, National Economics University, said that the demand for consumption loans in the "unqualified" group is very large and diverse. It is also very urgent, especially in the post-Covid-19 pandemic period.

Moreover, consumption loans often focus on two popular products: house loans (real estate investment) and house repairswith 50% of consumption credit and loans to buy car about 10% of loantotal, while two other products of credit cards and student loans are not popular. Other purpose consumption is quite modest, due to difficulties in developing relationships with suppliers, reaching customers and processing loan procedures.

Finding the suitable products

Due to the impact of the pandemic, it not only causesthe recession but also changesthe habits and life of the people, so in order to meet the "substandard" borrowing needs, financial companies must have appropriate credit products and services, helping people stay away from "black credit".

Regarding this problem, economist Dr. Can Van Luc said that, besides creating conditions for the legal framework, management from functional agencies, consumer finance companies and commercial banks should review and adjust business strategies; developing a new business model in line with market trends after the pandemic. In particular, we should pay attention to changes in consumption trends and new tastes of customers to develop appropriate policies and products.

Moreover, according to this expert, financial companies need to pay more attention to developing technology platforms. Many companies still have manual and expensive management, leading to higher interest rates. Financial companies need to focus on managing credit risk, balancing between risks and lending rates, bringing them to a reasonable level to attract people to increase consumption loans and reduce risks of non-repayment, building and developing human resources to develop effectively and sustainably.

In addition, along with traditional lending methods, financial companies and commercial banks should pilot products applying financial technology (fintech), as well as create a digital platform same as peer lending companies.

On the other hand, experts said that the completion of the legal basis can both encourage and tightly and transparently manage consumption credit activities. First of all, the research and announcement of a consumption loan program to support people wishing to overcome the difficulties of the Covid-19 pandemic. In addition, there aren’t many formal consumption lending institutions, resulting in less competition, forming a living land for "black credit", so there must be a solution to develop more credit institutions in both numbers and model.

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According to Mr. Pham Xuan Hoe, Deputy Director of the Banking Strategy Institute, SBV, besidesincreasing domestic spending,not only stimulating consumer credit, but also spendingVND62,000 billion co-rescuing people who lost their jobs and poverty to sustain their lives; disbursing VND16,000 billion package of 0% interest rate from Vietnam Bank for Social Policies to borrow money to pay salaries to employees affected by the pandemic; stimulating demand to create jobs with VND700,000 billion of public investment. Not only that, the education of personal finance, changing consumer habits must also be focused to develop comprehensively, according to following the microfinance universalization strategy that the Government has issued.