Borrowing and defaulting on debt, the bad debt ratio of consumer finance companies is increasing

Borrowing and defaulting on loans, the bad debt ratio of consumer finance companies is increasing — Mr. Nguyen Quoc Hung, General Secretary of the Banking Association. Photo: HHNH

Speaking at the workshop “Current status of consumer lending activities of credit institutions and current debt collection issues” on November 16, Deputy Governor of the State Bank of Vietnam Dao Minh Tu said that lending for living and consumer credit is considered a potential field. In developed countries, the rate of consumer credit is high. In Vietnam, when economic conditions and people's income are increasing, surpassing the threshold of developing countries, consumer loans and lending for consumption are very objective and necessary needs of society.

Permanent Deputy Governor of the State Bank Dao Minh Tu. Photo: HHNH — Deputy Governor of the State Bank of Vietnam Dao Minh Tu said, "If official credit decreases, black credit will have a chance to develop." Photo: HHNH

Deputy Governor Dao Minh Tu said that the current lending relationship between financial companies and borrowers is not positive. Debt evasion, default, and especially debt collection are burning issues. Moreover, if official credit decreases, black credit has the opportunity to develop.

A representative of the National Registration Department of Secured Transactions, Ministry of Justice said: "In Vietnam, consumer lending is a large market with great potential for development, becoming an attractive field for credit institutions. From a certain perspective, consumer lending has the effect of encouraging production and business activities, meeting consumer financial needs, matching people's payment capacity and limiting black credit."

Mr. Nguyen Quoc Hung, General Secretary of the Banking Association, said that the bad debt ratio in consumer credit throughout the system tends to increase (about 3.7% of total outstanding consumer credit, while from 2018 to 2022, this bad debt ratio was only approximately 2%), even the bad debt ratio of financial companies is at risk of increasing by over 15%, many companies are in a difficult situation, even losing money due to having to set aside high provisions for bad debt risks.

The rate of bad debt in consumer loans is increasing, in addition to the objective factors with common difficulties, there are also subjective and very dangerous factors that have not been dealt with, such as customers intentionally not paying their debts, the previous person advising the next person not to pay their debts, even when company officials come to collect debts or remind them to pay their debts, they oppose, denounce, and slander the officials for using aggressive measures to collect debts to the government. Groups that invite each other to "default on debt" are widespread on social networks, also causing many consequences for credit institutions but are not handled.

All of the above makes debt collection activities, especially consumer credit debt of credit institutions, very difficult. Some credit institutions are forced to proactively cut down on their consumer loan portfolio to avoid bad debt from continuing to arise.

Mr. Nguyen Quoc Hung said that, in the current situation, there should be effective solutions to create conditions for credit institutions to develop consumer lending activities in a healthier, more sustainable and effective manner, contributing to limiting black credit.

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