Consumer lending declines as groups "default on debt"

This information was announced by Mr. Nguyen Quoc Hung, General Secretary of the Banking Association at the Workshop on Resolving difficulties in consumer lending - pushing back black credit, today.

As of August 31, the outstanding loans for living services of the entire system reached about 2.67 million billion VND, accounting for 21% of the total outstanding loans of the economy, and increased by less than 3% compared to the end of last year. Compared to the 22% increase of the whole year 2022, this level is too modest, according to him.

Of which, the outstanding debt of 16 financial companies lending to serve living needs is more than VND 135,000 billion (accounting for more than 5% of outstanding debt for lending to serve living needs). This figure at the end of 2022 is more than VND 200,000 billion, corresponding to a decrease of more than 30%. While credit has decreased sharply, bad debt of this group has increased sharply, from 8 to 10% on average, with some companies having bad debt up to 20%. According to FiinGroup statistics, bad debt of the group of financial companies has increased from 10.7% at the end of 2022 to 12.5% ​​at the end of June 2023.

"Many financial companies are in a difficult situation, even suffering losses, due to having to set aside high provisions for bad debt risks," said Mr. Hung.

According to Mr. Le Quoc Ninh, General Director of Mcredit, the cause of this situation, in addition to economic difficulties and reduced income of workers, is that financial companies are being equated with black credit organizations, customers deliberately default on debt, and fraudulent activities are becoming more sophisticated and increasing. On social networking platforms, the number of groups advising on "defaulting on debt" and "avoiding debt" has tens of thousands, even hundreds of thousands of members.

According to Major Nguyen Ngoc Son, Deputy Head of Division 6, Criminal Police Department, the current form of black credit crime is to create fake applications and websites with logos, names and access addresses similar to those of licensed banks and financial companies to attract borrowers. The loans are usually small (1-3 million VND), but with interest and fees added, the amount the borrower has to pay is very high. Consumers tend to equate legitimate financial companies with these applications.

"In Vietnam, there are 16 licensed consumer finance companies, but the positive values ​​that these companies aim for are being diluted by hundreds of black credit companies," said MCredit's General Director.

In addition to the problem of debt default and debt evasion, Ms. Nguyen Thi Minh Nguyet, Acting General Director of Vietnam Prosperity Bank Finance Company SMBC (FE Credit) said that another reality is that debt collectors are assaulted.

With FE Credit, in the period of 2019-2020, the number of cases of debt collectors being made difficult was only two. But in the past two years, this number has increased 12 times, to 24 cases, with the situation becoming increasingly serious.

"Part of the reason is that borrowers' understanding is not really complete, they do not see all the consequences of this behavior," said Ms. Nguyet. Regulations and rules on this issue are already in place, the legal framework is clear, but their implementation has not yet had a deterrent effect. Many customers use the excuse: "I am having a hard time so I don't want to pay my debt" to tell debt collectors.

Regarding the issue of extreme debt collection by financial companies, Ms. Nguyet believes that it is just a mistake of some individuals. "I affirm that financial companies or FE Credit do not promote extreme debt collection actions," the Acting General Director of FE Credit affirmed.

With the current "difficulty solving" solution for consumer credit, experts and companies operating in the market believe that there should be measures to help borrowers understand the seriousness of "debt default" and "debt evasion", and the difference between financial companies and black credit applications.

According to Dr. Can Van Luc, one of the reasons many customers give for defaulting on their debt is high interest rates. They say they default on their debt because they are unable to pay. "When the bad debt ratio increases, financial companies are forced to raise lending rates to prevent risks. Borrowers need to understand that if they comply with their debt repayments, the interest rate will be adjusted," said Mr. Luc.

With the current market identification problem, Lawyer Nguyen The Truyen, Director of Thien Thanh Law Firm, said that legitimate financial companies need to have more monitoring and propaganda measures so that borrowers understand the difference.

"For market-leading financial companies, you have to let everyone know who you are. Companies need to have a specialized department to check the presence of fake units and fake news, to avoid causing misunderstandings and equating legitimate financial companies with black credit," said Lawyer Truyen.