HCM City (VNS/VNA) - Consumer loans have increased sharply in Ho Chi Minh City in recentyears, said Nguyen Hoang Minh, Director of the State Bank of Vietnam’s HCM CityBranch.

In 2012-16 they grew at20-22 percent a year, he said.

At 250 trillion VND (11.01billion USD) they make up 12.2 percent of the total outstanding loans of 2,000trillion VND (88.1 billion USD) currently.

Data from the NationalFinancial Supervision Committee shows consumer lending has risen by a whopping58.6 percent this year.

As for the overall nationalfigure, a report in July by Ban Viet Securities Company had estimated themarket at nearly 600 trillion VND (26 billion USD) last year, or nearly10 percent of the GDP.

Significantly, mostconsumer loans are given by finance companies, whose interest rates are usuallymuch higher than banks’.

The four biggest financecompanies, FE Credit, Home Credit, HD Saison and Prudential Finance, accountfor 84 percent of the market.

Consumer loans are mostlygiven for buying household goods and meet travel expenses, with mobile devices,vehicles and personal computers costing less than 2,000 USD accounting for alarge proportion.

Experts said the highinterest rates are because the companies’ cost of capital is very high.

This is mostly becausetheir loans are small and often for short terms (averaging between 6 and 18months), which makes each expensive in terms of debt collection and managementand other related services.

Besides, the loans arehighly risky since they do not require collateral.

Analysts attributed therapid growth in consumer to certain reasons, one of which is the rapid changein people’s incomes and spending habits.

Vietnamese consumers arespending over 67 percent of their earnings ratio, and this is set to risefurther as the economy picks up.

The fact that consumerlending procedures are very simple and no collateral is required are otherreasons for their popularity, especially among the population segment that doesnot qualify for bank loans.

This segment finds consumerloans attractive to black market loans controlled by loan sharks.

But experts warned that thethreat of bad debts is a constant one for banks and finance institutions. -VNA