Employing technology to drive consumer credit

Bao ngoc

On the first days of October, Mr. Nguyen Mai Khanh, head of BIDV Retail Banking, talked to BIDV Review about solutions to promote consumer credit given the impact of the Covid-19 pandemic.

Could you briefly describe the impact of Covid-19 on BIDV’s consumer lending?

The Vietnamese economy has been heavily affected by the two consecutive outbreaks of Covid-19, however, thanks to proactive countermeasures at both national and local level, the impact has not been as serious as in other countries.

A report recently released by the International Monetary Fund (IMF) showed that Vietnam's economic growth was at 2.1 percent in the first nine months of the year, much lower than that of 7 percent in the same period in 2019, but still an impressive result in the context of the global Covid-19 pandemic. Vietnam continues to be the only country in Southeast Asia to be experiencing positive growth, forecast at 1.6 percent in 2020 and 6.7 percent in 2021.

According to Vietnam’s General Statistics Office (GSO), as of September 2020, 31.8 million people across the country had been negatively affected by Covid-19, of which 68.9 percent have

Mr. Nguyen Mai Khanh, Head of BIDV Retail Banking Department (October 2020)

seen their income reduced, nearly 40 percent are having to work an alternate schedule, and about 14 percent have had to stop or suspend their business and production activities.

Enterprises are facing vast difficulties in their production and business activities, especially those directly affected by the pandemic such as tourism, catering services and hotels. The income of numerous workers has decreased, leading to a decrease in demand for consumer loans.

Credit institutions have been strongly affected by this consequence and BIDV is no exception. In the first nine months of the year, the credit growth of the whole banking sector was only 5.12 percent. BIDV’s credit growth was just 2.87 percent, with retail credit increasing by 4.5 percent compared to 15.7 percent seen the last year.

How has BIDV implemented consumer lending so far?

Since 1 April 2020 BIDV has launched a program on reducing lending interest rates up to 2 percent p.a. for individual customers affected by Covid-19, aiming to support them to overcome difficulties caused by the pandemic.

In addition, since 5 August 2020, BIDV has increased the size of its medium and long term loan package “Accompanying to reach further” to VND40 trillion (USD1.73 billion) and reduced lending interest rates. When applying for loans, borrowers will enjoy introductory lending rates of 7.2 percent p.a only with flexible terms.

In addition, borrowers during this period are also entitled to other attractive incentives such as a cash bonus of VND1 million (USD43.3) per customer; insurance; free electronic banking maintenance service fee; an additional 0.6 percent p.a. on online deposit interest rate; reduction of more than 70 percent of online interbank money transfer fee; and refunds of 100 percent of the top-up card value (up to VND100,000 per customer) applicable

to new BIDV SmartBanking users making phone top-up via the app.

Thanks to competitive credit packages and open lending policies, in the third quarter BIDV increased the consumer loan balance by more than VND1,600 billion (USD69.3 million) and this figure is likely to continue to grow upon the economy’s recovery.

What are the risks of consumer lending and what solutions has BIDV taken to hedge them?

Although the State Bank of Vietnam encourages the promotion of consumer lending, the level of growth depends greatly on the economy’s absorption capacity. Currently, individual demand for consumer loans has not recovered to the level before the outbreak, especially in the context of uncertain employment and reduced income due to the pandemic, which poses many potential risks for lending. Credit institutions should have measures in place to control and manage risks while boosting credit growth.

At BIDV, in order to ensure sustainable, effective and sound consumer lending development, BIDV has been implementing a series of risk control measures such as standardising products, reviewing and innovating all consumer lending processes, focusing on customers with good debt repayment history, limiting cash loans, controlling loan use purposes, and contributing to making the consumer loan market healthier.

How do you envisage the picture of consumer credit in the next years? What measures will BIDV take to boost consumer lending?

The Covid-19 pandemic has affected the economic life of many individuals and households, resulting in decreased demand for consumer loans. However, when the economy recovers, consumer lending will continue to stimulate aggregate demand and support growth.

The IMF forecasts that Vietnam's GDP per capita will exceed USD5,000, reaching USD5,211.9 by 2025. Statistics from the State Bank of Vietnam show that, over the past years, total consumer loans in Vietnam saw an average growth of nearly 20 percent p.a. Outstanding consumer loan per capita reached approximately VND1.5 million. This is a very low figure compared to the 100 million people of a developing country with a young population structure and high demand for consumption. Therefore, the potential for consumer loans by people is forecast to be huge.

In the coming time, BIDV will focus on developing technology applications, enhancing customers’ access to products, regularly offering preferential credit packages with attractive policies tailored to the needs of each customer segment and customer lifecycle; and promoting an end-to-end link between Developers/Car companies - Bank - Customers to implement housing/car loan program.