In recent years, Vietnamese consumers have become more willing to purchase high value items after paying essential living expenses, leading to strong growth in consumer credit, according to Viet Dragon Securities Company (VDSC). VDSC attributed the development of Vietnam’s consumer market to positive economic expansion and the growth of the middle class.
Since 2014, the Vietnamese consumer confidence index (CCI) has increased, peaking at 129 in the third quarter of 2018 and in the first quarter of 2019, while payment method gradually shifted from cash to non-cash, and Vietnamese tend to be more willing to borrow for instant purchase instead of saving until they accumulate enough to afford it. .
According to FiinGroup’s data, the average annual growth rate of consumer credit was up to 66.3% per year during 2015-2017 after hovering at 20% per year in 2013-2014. The momentum has slowed down in 2018 with a 30.4% growth rate, lower than the 59% average during 5 years before.
However, consumer credit plays an increasingly important role in the economy as the proportion of consumer credit in the total credit has increased from 12.3% in 2016 to 17% and 19.7% in 2017 and 2018, respectively.
Nevertheless, this proportion is still lower than that of world’s developed countries at 40-50%.
Potential to boost consumer credit
For the coming years, Vietnam’s consumer market is forecast to maintain high and stable growth, making Vietnam an attractive destination for retail. Vietnam's real GPD growth is forecast to increase by 91.4% in the period of 2019 - 2030, along with a surge in consumer spending.
According to Euromonitor, per capita disposable income is estimated at over VND40 million (US$1,773) in 2018 and expects an average growth of 5.9% annually from 2019-2030, leading to corresponding growth of consumer spending. The middle-income class is also increasing rapidly with a forecast that 49% of households will have an annual disposable income of between US$5,000 and US$15,000, up from 33.8% in 2018.
The spending demand is diverse. The first quarter of 2019 witnessed increasing percentage in respondents spending in categories such as shopping, tourism, high-tech products, health care insurance, and especially home improvement. The CCI also returned to the peak of 129 achieved in the third quarter of 2018, ranking third in the world after the Philippines (133) and India (132).
According to Nielsen, this strong growth is due to optimistic attitude towards job opportunities, personal financial security and open spending mentality of Vietnamese consumers. About 80% of the respondents believe that they will have good or excellent job opportunities (up 5% from the previous quarter) or will have good or excellent financial situation in the next 12 months (up 6% compared to the previous quarter). Meanwhile, 67% of respondents were willing to spend, up 4% from the previous quarter.
Thus, in the context of positive consumer expenditure growth, the shift in consumer behavior, the low penetration of consumer credit on total credit, as well as a large proportion of unserved customers, there is still opportunity for financial institutions to boost consumer credit, VDSC pointed out.
