Many consumer credit organizations' bad debts have skyrocketed

DNHN - The impact of the COVID-19 epidemic on the income of many working people has a substantial influence on the bad debt burden of consumer lending organizations. Many parent firms had to boost their risk provisioning, which had a substantial impact on profitability in the first half of this year.

Military Commercial Joint Stock Bank (MBBank) is under strain due to a surge in bad debt from its subsidiary, MB SHINSEI Finance Company Limited, in the second quarter of 2022. MBBank's bad debt ratio was still among the lowest at the end of the second quarter of 2022, but it had climbed by 1.2% compared to the end of 2021, from 0.99% at the end of the first quarter of 2022, and the debt ratio group 2 had increased to 13.6%. Notably, group 5 debt climbed dramatically to VND 1,826 billion, up 44% from the previous quarter and 224% year on year.

MCredit's income reached over VND 600 billion in the first half of this year, jumping 74% from the same period last year, although asset quality is deteriorating. When the bad debt percentage always varies between 6-6.5%, the group's outstanding loans 2 is highly variable between quarters and has peaked during the first and third outbreaks of the COVID-19 pandemic, according to a recent analysis on MBBank by an expert of SSI Securities Joint Stock Company. Despite a very high increase in existing loans (up 29% compared to the beginning of the year and 6.6% compared to the previous quarter), MCredit's group 2 loan balance continued to peak in the second quarter of 2022.

According to SSI experts, the explanation might be the debt repayment capabilities of low-income consumers, who are the first affected customer groups when the cost of living rises and disposable income falls. If the loan growth ceiling is not effectively expanded, debt quality and profitability may suffer in the short run.

Tin Viet Finance Joint Stock Company (VietCredit) also reported a significant increase in bad debt in the first half of this year, up 11% from the start of the year to more than VND 525 billion. In which dubious debt (debt group 4) and debt likely to lose capital (debt group 5) climbed significantly from the start of the year.

VietCredit reported a pre-tax profit of slightly over 49 billion dongs in the first six months of 2022, a 15% decrease from the same period, owing primarily to a net loss from services and the need to increase the provision for credit risks to more than 40%.

According to the consolidated financial records of Vietnam Prosperity Commercial Joint Stock Bank (VPBank) for the second quarter of 2022, the bank's bad debt amount was VND 20,625 billion at the end of June 2022, a 27% rise from the beginning of the year. The bad debt percentage will rise to 5.25% by 2022. The surge in bad debt is linked to a group of outstanding loans from a subsidiary, FE Credit Consumer Finance Company.

According to VNDrirect Securities Joint Stock Company estimates, FE Credit's 6-month cumulative pre-tax profit is around VND 130 billion, down 89% from the same time in 2021, reducing the overall year target to 4,000 - 5,000 billion. Meanwhile, FE Credit profited roughly 800 billion dongs in the first quarter of 2022, nearly double the total year 2021 result. As a result, FE Credit will almost certainly have to declare a pre-tax loss of up to 490 billion dongs in the II quarter.

VNDirect estimates that FE Credit's profit was reduced by a fall in net profit margin (NIM) and a significant increase in provision charges. By the end of June 2022, this financial company's bad debt had increased by 113% compared to the same time the previous year, bringing the bad debt ratio to 15.1%.

Consumer finance firms' activities were hampered by the start of the pandemic due to challenges in gaining new clients and collecting debt from current ones. Employees are the primary consumers of consumer lending firms, and workers face income reductions. Furthermore, the emergence of online consumer loan apps has led consumer finance organizations' market share to decline over time.

The consumer financing industry, on the other hand, is predicted to thrive in the second half of 2022 and expand further in 2023. According to analysts, the cost of financial organizations' risk provisions is anticipated to rise. predicted to fall in the second half of this year as a result of economic recovery, assisting in the improvement of workers' earnings This is likely to assist consumer finance organizations in increasing client access and becoming stronger in the future.

PV (t/h)