An advertisement of consumer lending product of FE Credit at a store of Thế Giới Di Động. It is critical to strengthen consumer production and improve debt collection regulations and practices to ensure a sound and effective development of the consumer lending market in Việt Nam. — VNA Photo

HÀ NỘI — It is critical to strengthen consumer production and improve debt collection regulations and practices to ensure a sound and effective development of the consumer lending market in Việt Nam, heard a conference jointly held by the Việt Nam Banks Association (VNBC) and the International Finance Corporation (IFC) on Tuesday.

According to Daryl Dong, IFC’s Country Principal Officer, lending to individuals is going through a rough patch right now. The consumer credit market points to a slowing growth due to the downturn in labor-intensive sectors, adverse external market conditions, reduced credit demand, tightened underwriting and rising delinquencies.

Stressing that it is a tough time for consumer lenders, Daryl said that non-performing loans (NPLs) in the sector have mounted significantly. He cited statistics of the VNBA that the market saw consumer NPLs around 5 per cent in 2022 and over 10 per cent in 2023. The ratio is probably trending upwards this year, he said.

He pointed out the reasons are that the market disruptions of COVID-19 pushed many low-income earners who represent the main customers of consumer credit into struggling indebtedness, coupled with the take-on of credit to purposely default.

“Enhancing the effectiveness in consumer debt collection is particularly important. And the development of a robust and professional NPL trading market with the participation of professional NPL trading and servicing companies is instrumental in NPL resolution,” Daryl said.

VNBA estimated that lending to individuals was estimated to total around VNĐ2.8 quadrillion as of the end of 2023, or 21 per cent of the total outstanding loans in the economy.

Among 16 financial companies licensed in Việt Nam, 15 are in operation with a total outstanding loans worth around VNĐ138.8 million, accounting for a modest share of around 5 per cent in in the total lending to individuals. NPls account for nearly 18 per cent of consumer loans in the whole system.

Nguyễn Quốc Hùng, VNBA’s Vice Chairman, said that consumer lending is potential in Việt Nam but is in a tough time. Many lenders are struggling, even suffering loss due to high provisions for bad debt risks and difficulties in collecting debts, he said. Meanwhile, usury is booming, especially in rural areas.

Nguyễn Hồng Quân, a member of the VNBA Council, said that consumer lending operations face a few difficulties and barriers.

Those include the misunderstanding about commercial banks and finance companies, the explosion of consumer loan fraud and non-repayment and the rising debt collection criminals.

Besides, there are no sanctions for customers who default or avoid debt repayment or are with NPLs.

 There is also a lack of professional debt collection tools and intermediary organisations to support commercial banks and finance companies in debt remainders and collection. Debt collection services are prohibited from January 1st, 2021.

Quân said that one important solution to promote the development of consumer lending is to increase awareness and responsibility of borrowers. It is also necessary to develop a citizen credit scoring system together with improving the transparency in consumer lending operations, he said.

According to Moon Youngso, representative of the Founding Committee of the Debt Trading Association, establishing a code of conduct for debt recovery activities is needed to establish a detailed legal framework and clear mechanism for debt recovery.

“The code of conduct ensures all transactions and communications with customers align with legal provisions and societal norms.

Besides, the code of conduct also helps protect the rights of customers and businesses because it ensures debt recovery processes are conducted fairly and appropriately, minimises operational risks and improves efficiency in recovery operations.

Importantly, establishing a code of conduct helps the organisation operate within legal boundaries, encouraging an efficient, fair, safe and sustainable business environment, Moon stressed.

Lê Quốc Ninh, Chair of Việt Nam Consumer Finance Club, said that Việt Nam should complete the legal framework for consumer lending market to ensure its on-track development, meet the credit needs of the people and contribute to limiting black credit markets.

He said consideration should be given to allowing and managing professional debt servicing. Currently, debt collection service is prohibited under the Investment Law 2022, while black debt collection activities have not disappeared but become transformed and hidden and are unable to be controlled.

He pointed out that Việt Nam still lacks professional debt servicing services while this is popular in developed countries.

The Circular No 43/2016/TT-NHN on consumer lending operation of finance companies should be amended to create a healthy environment for the consumer finance market in Việt Nam, Ninh said.

He proposed the Ministry of Public Security develop detailed and consistent guidelines to handle and prosecute criminal liability for intentional evasion of debt repayment obligations. — VNS