Consumer loans slow to a crawl in 2023

Nguyen Tung in Ho Chi Minh City listed a land lot for sale all 12 months of 2023. But he still hasn’t even come close to finding a buyer for his property.

He acquired the lot in 2022 with a VND1 billion ($40,800) loan, hoping that he would be able to resell it for profit.

But he had not anticipated the real estate slump of 2023, in which demand vanished and finding a buyer became impossible for the vast majority of property sellers.

“My only hope now is to sell the lot to pay my debt and monthly interest,” Tung sighed. “But there don’t seem to be any property speculators anymore.”

Tung’s challenge in selling his land lot reflects consumer reluctance to make purchases and investment decisions last year due to economic uncertainty, which led to slower growth in consumer loans.

The latest official Vietnamese data shows that in the first nine months of last year consumer loans, which account for one-fifth of total loans, grew by only 1.5% year-on-year, the lowest figure in five years.

The country’s largest commercial hub, Ho Chi Minh City, recorded only a 1.4% growth rate in the first 10 months, against 19% in the same period in 2022. In HCMC, around two-thirds of consumer loans are generally disbursed to property buyers.

Analysts at Vietcombank Securities said that borrowing to buy homes has been the main driver of consumer loans for years, but this was not the case last year due to high loan interest rates and a “frozen” property market.

Property purchase loans had declined by 1% by the end of September compared to the beginning of the year, experts have noted.

This is a reverse of a trend against previous years when droves of speculators had rushed to borrow to buy property in hopes of selling for larger profits immediately afterwards.

One foreign bank executive in Vietnam said that borrowing to buy property had become risky and therefore only those who have real demand for residential property have applied for loans recently.

The executive added that wages and salaries have also dropped across the country, resulting in a drastic dip in the average Vietnamese worker’s purchase of goods like electronics, vehicles, and other non-essential items.

A HCMC resident named Manh told VnExpress that last year he put on hold the idea of borrowing bank money to buy a car and work as a ride-hailing driver because he saw that his friends had done the same thing but were unable to recoup their investment due to sagging demand in the urban transportation sector.

In another related example, auto sales dropped 30% year-on-year in the first 10 months.

Retail loans used to be one of local banks’ most popular products, but last year Vietnamese lenders became more cautious about issuing retail credit as they watched the country’s average bad debt ratio rise from 2% in the 2018-2022 period to 3.7% by the end of last year, according to the Vietnam Bank Association (VNBA).

The ratio of retail loans over total lending in the banking sector dropped from 47% to 46% within the first nine months.

Ho Van Long, deputy CEO of lender VIB, told investors last year that the bank had prioritized retail loans in the previous years to encourage the purchase of property and cars.

But in 2023 demand for retail loans slowed, without recovery in sight, and therefore the bank had to prioritize loans to businesses, he added.

Jens Lottner, CEO of Techcombank, said he wanted to expand retail loans, but the right time had yet to present itself. The bank therefore focused funding larger, less-risky corporations last year.

Data from 16 financial companies primarily focused on retail lending, showed that loans distributed for daily-life expenses dropped 30% in the first eight months.

And bad debt at these companies was also at risk of rising to over 15%, said VNBA general secretary Nguyen Quoc Hung.

Loss of income among the majority of Vietnam’s average working population had also resulted in a decline in loans, he said.

Olena Khlo, deputy CEO of SHBFinance, said that in her 17 years of experience in the finance-banking sector, last year was one of the hardest.

Vietnam analysts have said they expect that retail loans might improve partially this year as demand for property investment is expected to rise.