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Consumer lending to be boosted

This can be the most favorable time for banks to promote consumer lending packages when shopping and storing demand for yearend are making lending market more exciting than any other time of the year.

On October 28th, State Bank of Vietnam (SBV) announced to cut deposit interest rate ceiling, lending interest rate (in VND) and deposit interest rate (in USD) down to 0.5-1%/year lower.

Reduced interest rate

SBV also calls credit institutions to decrease lending interest in an effort to share difficulty with corporate and customers; contributing to meet growth target of 12-14% for 2014 as credit has only grown by nearly 9% in the first 10 months of 2014. In response, many banks announce lending interest rate cut and beside prioritized areas, lending interest rate level decreases remarkably. SBV estimates that compared with earlier this year, interest rate level has decreased by 1-1,5%/year. Consumer loan interest rate fluctuates at 10-14%/year depending on lending method and bank policy, which is the lowest rate over the past 05 years.

Identifying consumer loan as a major goal to boost credit growth for 2014, credit institutions have been launching a series of promotion campaigns and consumer lending packages to stimulate lending applicants. Most remarkably, ACB, Techcombank, ABBank, Sacombank, etc are offering customers wide range of benefits: interest rate under 10%/year, unsecured loan without collateral, quick procedure, coordination in payment with car manufacturers, supermarkets, restaurant, real estate agencies, etc for customer convenience. Card issuing and consumer loan via credit cards are further promoted as well.

Taking advantage of young population, increasing customers under labor age, especially office workers at urban areas, consumer loan has been one of the most potential lending markets. What’s more, little possibility of bad debt and wide market share are making consumer loan a priority for banks.

Expectation in purchasing power

Belt-tightening policy has been applied by consumers since 2011, aiming at more reasonable spending; however it can’t be denied that spending and service application (except for essential commodities) are increasing dramatically on tourism, education, high quality healthcare, outside dining, purchase of luxurious and new hi-tech commodities, cars and apartments, etc.

Regardless of difficult economic situation, statistics of Ministry of Industry and Trade shows that total retail value by end of October 2014 reaches VND 2.399.480 billion, which is 11.1% higher than same period last year. Not taking into consideration of price level up, total retail value of first 10 months of 2014 grows by 6.4%. Tourism has the highest growth of 16.6%; hospitality and services grows by 10.8% and 11.8% respectively. The final 03 months have always seen highest growth in purchasing power for commodities and services. This accordingly is the “golden” period for banks to boost consumer loan and increase revenue.

The Government has planned to extend number of holidays on the occasion of New Year 2015 and Lunar New Year (04 and 09 days respectively) to stimulate spending. At the current period, numerous supermarket chains, tourist attractions, restaurants, car manufacturers...are running promotion campaigns to encourage consumer spending during the biggest holidays of the year. As a result, banks are targeting purchasing power improvement for higher consumer loan applicant and credit card holder volume by offering more reasonable interest policies and procedure.