Transformation after the storm

Consumer credit has experienced the most severe year in history when consumption - one of the driving forces of economic growth - has yet to recover in 2023. Stimulating demand, increasing purchasing power and changes from the internal strength of credit institutions, the picture is expected to "not be worse".

Mcredit, loyal to the strategy of "humane lending" and "humane debt collection", takes customers as the center.

Coping with the dual challenge

Deep discounts, huge promotions but weak demand - the motorbike market, which is usually bustling with "sale hunting" around Tet, has a gloomy tone in the month before Tet Giap Thin. Data from the Vietnam Association of Motorcycle Manufacturers (VAMM) shows a significant decline in sales in 2023: only nearly 2.52 million vehicles were sold by 5 member companies, down 16.21% compared to the previous year.

Managing a large motorbike dealership in Hanoi, Mr. Hieu said that business has been significantly worse since mid-2023 and has not improved much since then. Sales have fortunately not decreased too much, but revenue has fallen sharply because the dealership has reduced prices, even accepting to sell below the manufacturer's suggested price for some models.

Electronics and refrigeration products are also among the group of people who are “tightening their spending”. MWG, a retail giant that earns billions of dollars each year, witnessed a decrease of more than VND20,100 billion in revenue this year, equivalent to a 14% decrease, in the two brands Mobile World and Dien May Xanh. 2023, according to the head of MWG, is one of the most fierce years in its history of operation.

The post-pandemic recovery scenario did not go as expected when consumer income and confidence were less positive. Also due to weak consumption, consumer lending slowed down and went through a difficult journey.

In terms of finance companies alone, which provide capital to the subprime customer segment (often having difficulty accessing bank credit), outstanding consumer credit according to the latest updated data decreased by about 40% compared to the end of last year. Specifically, by the end of the third quarter of 2023, the total outstanding loans of finance companies were only VND 134,000 billion, while bad debt increased by 10-15%.

Outstanding customer loans of FE Credit - the largest finance company in the industry - are estimated to have decreased by 14.6% compared to the beginning of the year. In 2023, FE Credit reported a loss of VND 3,699 billion. Foreign-invested finance companies Mirae Asset Finance, JACCS and Shinhan Finance all suffered significant losses.

EVN Finance, Home Credit and Mcredit still maintained positive profits despite a decrease compared to the same period last year. Among consumer finance companies, EVN Finance reported the smallest decrease in profits (nearly 10.4%), but mainly thanks to the realization of profits from a large number of stocks in its portfolio.

According to Mr. Le Quoc Ninh, General Director of MB Shinsei Finance Company Limited (Mcredit), Chairman of the Consumer Finance Club, the operations of financial companies last year simultaneously faced a "double" challenge. In addition to consumer demand, especially for durable products such as motorbikes, televisions, phones, etc., which clearly weakened, customers' ability to repay debts last year was also affected. Workers' incomes have dropped sharply in the context of increasing unemployment, declining orders, and no more extra income from overtime...

At the same time, the phenomenon of "defaulting on debt" from a segment of customers not only increases bad debt but also requires stricter risk management in consumer loan disbursement activities. At car dealerships, like the one Mr. Hieu manages, partly because of this reason, the proportion of car purchases on installments has decreased sharply.

The rate of borrowers not paying their debts is increasing, while sanctions against borrowers are not sufficient, and lawsuits are difficult to carry out with low-value debts. Dr. Nguyen Quoc Hung, General Secretary of the Vietnam Banking Association (VNBA), estimated that the average bad debt ratio in the group of financial companies is at risk of increasing by over 15%.

New impetus from policy

The cautious psychology in the face of economic difficulties has reduced purchasing power, causing people to tighten spending. This has not stopped in 2023. Despite efforts to stimulate consumption, the growth rate of domestic consumption demand in the first quarter is still lower than the same period in 2023 and the years before the pandemic 2011 - 2019. Recently released economic data shows that total retail sales of goods and consumer service revenue increased by only 8.2% over the same period, lower than the rate of over 9% in previous years.

At the regular Government meeting in March 2024, low domestic market demand and high competitiveness are the biggest difficulties facing manufacturing enterprises today. Therefore, continuing to renew traditional growth drivers, including consumption, is also one of the five key tasks that the head of the Government requested to prioritize implementation.

From the banking sector, from the beginning of the year, the task of promoting consumer lending has been given top priority. According to Mr. Dao Minh Tu, Permanent Deputy Governor of the State Bank, only by promoting consumer lending can purchasing power be stimulated, thereby clearing the output of enterprises' products and increasing customers' capital demand again...

A new policy mechanism from the regulatory agency to promote consumer credit will soon be activated from July 1, 2024. Accordingly, small loans will not have to prove the purpose of capital use, thereby strongly stimulating retail lending activities - especially small loans.

Although the procedures have been “removed”, the General Secretary of the Vietnam Banking Association emphasized that credit institutions will not promote retail lending at all costs but will remain cautious in the face of the trend of bad debt that may continue to increase rapidly, and the legal corridor for debt collection and settlement still has many obstacles.

In addition to the policy of promoting credit disbursement, experts expect that debt collection will soon be more favorable for banks and financial companies when data can soon be directly linked to data from the Ministry of Public Security. The State Bank has said that it will coordinate with the Ministry of Public Security, using data from Project 06 to develop applications for data on population, identification and electronic authentication to serve digital transformation to facilitate consumer lending.

Up to now, the Ministry of Public Security has coordinated with 5 banks (Vietcombank, Vietinbank, Pvcombank, VIB, BIDV) and 1 credit institution (Mcredit) to complete technical solutions and deploy products to evaluate the creditworthiness of borrowers.

Stimulating consumer demand is a common problem for the economy. Faced with weak demand, efforts to reduce product prices and promotional programs have been implemented by many manufacturers in recent times. For a trading company like MWG, despite making a cautious forecast of flat consumer demand, this retailer aims for revenue growth to return to 6% and profits to recover strongly compared to the low base level in 2023.

In the consumer credit sector, recovery often lags behind macroeconomic signals. Mr. Le Quoc Ninh, General Director of MB Shinsei Finance Company Limited (Mcredit), said that this year is not yet the year with really good signals for this sector. However, according to Mr. Ninh, the market has passed the most difficult period and cannot get worse, especially with the Government's efforts to support economic growth through promoting consumption. At the same time, the difficulties of 2023 are also an opportunity for the consumer finance industry to look back and transform.

“The consumer finance sector will need some new management mechanisms from the State Bank. After the events, spontaneous things will be re-examined and become processes. Both financial companies and customers will benefit from this change,” the CEO of Mcredit emphasized.

At Mcredit, we are loyal to the strategy of “humane lending” and “humane debt collection”, taking customers as the center. Customer profiles are built clearly and in detail to provide loan products and consumer products that suit their needs and financial capacity, thereby helping to increase sustainable credit growth and control debt quality well.

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