Luận văn tiếng Anh thương mại Solutions to improve effectiveness of consumer credit in Vietnam.doc

INTRODUCTION
1. Rationale:
In the context of economic crisis recently, the Government has
implemented monetary policy and fiscal policy to encourage domestic
demands. Experience from the economic development of Vietnam and of
other countries around the world has shown that stable economic growth
should be based on the increase in domestic demand rather than the increase
in trade, especially import
Policy stimulating domestic demand, especially consumption demand, is
considered key economic development policy which helps reduce dependence
on imports. Therefore, the banking system - which provides channels to meet
the needs of the economy’s capital - will play an important role in providing
credit for consumer activities.
Also, under the situation of harsh competition in the context of
international integration, Vietnamese commercial banks must diversify forms
of credit in order to spread, limit, and control risks at the lowest level.
Although in recent years, the State Bank of Vietnam has paid
considerable attention to the field of consumer credit, this form of credit is
still underdeveloped, accounting for a modest proportion of total outstanding
loans. Therefore, to expand and enhance consumer credit growth, there is a
need to promote this type of credit.
After consulting my academic supervisor and taking everything into
consideration, I decided to title this thesis “Solutions to improve effectiveness
of consumer credit in Vietnam”.
2. Research purposes
Firstly, the thesis is aimed at generalizing basic fundamentals of
consumer credit.
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Secondly, the thesis targets to outline the overall picture of consumer
credit activities in VN.
Thirdly, based on the fundamentals and the situation shown, the thesis is

expected to give solutions and recommendations which may make a small
contribution to the development of consumer credit in VN.
1. Research scope
In terms of space, the thesis will focus on studying consumer credit
activities in Vietnam’s commercial banks.
In terms of time, the thesis will focus on researching consumer credit
activities in Vietnam’s commercial banks from 2006 until March 2010.
4. Research methodology
This thesis approaches the research topic in combination with
comparative analysis, which in one hand, points out common concepts,
understandings and practices in Vietnam with appropriate adjustments
through quantitative and qualitative methods.
With regard to its scope, as an introduction to an emerging industry,
this study only concentrates on consumer credit in Vietnam’s commercial
banking system.
Therefore, “overview” is the word that can tell exactly the scope of this
thesis, which in turn, reflects the overall purpose of the thesis.
5. Research structure:
This thesis is divided into three main chapters.
CHAPTER 1: THE FUNDAMENTALS OF CONSUMER CREDIT.
CHAPTER 2: CONSUMER CREDIT ACTIVITIES IN VIETNAM’S
COMMERCIAL BANK SYSTEM.
CHAPTER 3: SOLUTIONS AND RECOMMENDATIONS TO IMPROVE
EFFECTIVENESS OF CONSUMER CREDIT IN VIETNAM.
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CHAPTER 1: THE FUNDAMENTALS
OF CONSUMER CREDIT
The first chapter will focus on presenting the theoretical background of the
thesis. Key topics in this chapter include:
- Definition of consumer credit and its types.

- Characteristics and benefits of consumer credit.
- Consumer lending process.
- Indicators to evaluation credit performance.
- Experience and lessons drawn from consumer credit situation in EU.
1. 1. General principles of consumer credit
1.1.1. Definition of consumer credit
Not so many decades ago, consumer credit was little known and
seldom distinguished from credits granted for business and related purposes.
Today it is recognized to be a special type of financing that greatly influences
the rate of expansion or contraction of consumer demand and hence the level
of business activity.
Consumer credit (or consumer loans, consumer lending) can be
understood in a broad sense including government, non-profit, and informal
credit-debt relationship. For example: student loans and money lent between
friends and relatives, government lending to people receiving state benefits,
people paying utility and telecoms bills in arrears. These too can be
considered forms of consumer credit. However, consumer credit is sometimes
defined in a narrower context.
One of the pioneers in the field, Rolf Nugent, defined consumer credit
in his book as credit extended to individuals to finance the purchase of
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consumer commodities and services or to refinance debts which had their
origin in such purchases
1
.
Consumer credit can also be illustrated at the very end of the marketing
chain. According to Robert Cole and Lon Mishler, “consumer credit is the use
of credit as a medium of exchange for the purchase of finished goods and
services by the ultimate user”
2

.
In Consumer Credit Fundamentals, Steve Finlay defined consumer
credit as ‘money, goods or services provided to an individual in lieu of
payment’.
3

All in all, consumer credit can be seen as a credit-debt relationship in
which loans are provided to individuals and households to the purchase of
automobiles, homes, appliances, and other retail goods; to repair and
modernize homes; and to pay the finance the cost of medical care and other
personal expenses.
1.1.2. Characteristics of consumer credit
Consumer credit is distinguished from business credit by the following
characteristics:
Firstly, due to small scale of each consumer credit agreement which leads to
higher cost of lending operation, interest rate on consumer credit is typically
higher than the rate applied for business loans.
Secondly, consumer loans tend to be cyclically sensitive. They rise in periods
of economic expansion when consumers are generally optimistic about the
future. On the other hand, when the economy turns down, many individuals
become more pessimistic about the future and as a result reduce their
borrowings.
Thirdly, household borrowings appear to be relatively interest inelastic. A
borrower normally considers the monthly payments required by a loan
1
Rolf Nugent (1939), Consumer Credit and Economic Stability, Russell Sage Foundation, p.31, New York,
US.
2
Robert Cole, Lon Mishler (1998), Consumer and Business Credit Management, Irwin McGraw-Hill, US.
3

Steven Finlay (2009), Consumer Credit Fundamentals, Palgrave Macmillan, p.4, New York, US.
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agreement or the total payment at the end of agreement rather than the interest
rate charged on the loan.
Fourthly, income and education level have a close relationship with
customer’s demand for consumer credit. The higher income the customers
earn, the more likely it is that they will ask for consumer loans which they are
able to pay at the end of agreement. Both education and income levels do
materially influence consumers’ use of credit. Individuals with higher income
tend to borrow more in total and relative to the size of their annual incomes.
Those households in which principal breadwinner has more years of formal
education also tend to borrow more heavily relative to their income level.
Fifthly, the borrower’s main source of payment may be subject to
considerable fluctuation because it depends on the customer’s employment
history, skills, working experience, health, etc. Many of these factors change
over the time.
Sixthly, customers’ personalities and behaviors which are quite challenging to
define take a significant part in determining the debt payment. Normally, the
lender must be assured that the borrower has moral responsibility to repay a
loan on time.
1.2. Benefits of consumer credit
As for the bank, regardless of two drawbacks which are risk and high
cost, consumer credit covers significant advantages. Firstly, consumer credit
helps build up relationships with customer which might raise possibilities of
attracting capital for the bank itself. Secondly, consumer credit helps diversify
bank’s businesses which consequently help boost revenue and spread the
bank’s risks.
As for consumers, consumer credit provides a source of assistance in
times of financial stress. Thanks to this type of credit, they have opportunities
to enjoy conveniences even before they accumulate enough money for

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personal expenditure. Particularly, consumer credit is essential for unexpected
expenses such as on health care and education. However, misuse of consumer
credit may bring about insidious effects, which means borrowers may spend
an excessive amount of money, leading to limited capacity for saving and
consuming in the future. More seriously, borrowers might get themselves into
trouble for being unable to pay the debts.
Finally, as for the economy, consumer credit exerts a dramatic effect on
economic stimulus as well as creates positive conditions for accelerating
economic growth; leading to sustainable development. It performs a
supporting role in boosting household and individual consumption by
granting loans to cover essential expenses, particularly in times when the
economy is weak. Domestic demand including consumption and investment
consequently is fueled. Besides, the growth in the volume and diversity of
consumer credit products has resulted in a thriving consumer credit industry
providing employment for millions of people around the world. Moreover,
consumer credit helps diminish wealth gap by providing credit access to all
kinds of customers.
1.3. Types of consumer credit
Credit categorizing is arranging loans into specific groups according to
certain criteria. A science-based classification is the precondition for
organizing a proper credit-granting process and improving credit risk
management. Credit classifying is based on the following criteria:
1.3.1. Based on the purposes of a loan
a. Residential Mortgage Loan
A residential mortgage loan is used to purchase, build, or renovate a
fixed asset such as land or buildings, with the loan secured against the asset.
In most cases this will be the borrower’s home. A standard mortgage is
offered as a fixed term agreement. In the UK this is commonly 20 or 25 years
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and in the US it is 15 or 30 years. In Japan, terms as long as 50 years are not
unusual, with the debt being passed on to the next of kin if the original
borrower dies. When a mortgage has been fully repaid it is said to have been
redeemed.
b. Non-residential Mortgage Loan
A nonresidential mortgage loan is taken out to buy a new car; and
consumer durables such as a sofa, washing machine or a television. This type
of credit is also used to cover things such as household bills, travel and
entertainment.
1.3.2. Based on methods of payment
a. Instalment Consumer Loan
Installment consumer loan is a loan in which repayments cover both
principal and interest, with the debt having been amortized at regular intervals
during a fixed period of time and repaid in full by the end of the agreement.
This method of payment is applied for outstanding loans or in case customer’s
regular income cannot cover a lump sum payment (paid gradually over the
time).
b. Non-installment Consumer Loan
Short-term loans individuals and families draw upon for immediate
cash needs that are repayable in a lump sum are known as non-installment
loans. This type of loan is frequently used to cover the cost of vacations,
medical care, the purchase of home appliances, and auto and home repairs.
Such loans may be for relatively small amounts and include charge accounts
that often require payment in 30 days or some other relatively short time
period. Non-installment loans may also be made for a short period, usually six
months or less, to wealthier individuals and can be quite large.
c. Revolving Consumer Credit
A revolving loan, sometimes called a flexible loan or a budget account,
is a form of revolving credit. A borrower agrees to make a fixed monthly
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payment and in return has the ability to draw cash up to a maximum limit,
which is a multiple of the monthly payment amount. For example, an account
with a 15 times multiplier will allow a customer who agrees to pay $200 a
month to draw funds up to a maximum of $3,000.
1.3.3. Based on the origin of the loan
a. Indirect Consumer Loan
This is the type of loan in which lending relationships occur in order as
shown in the Figure 1.
Figure 1: Indirect Lending Relationships
(Source: Paul Beares, Richard E. Beck, Susan M. Siegel (2001), Consumer
Lending, American Banker Association, p. 67).
b. Direct Consumer Loan
Direct consumer loan is a loan in which a representative of the bank has
a face-to-face meeting to assess the creditworthiness of individuals applying
for credit. This person is known as an underwriter or a credit officer. A credit
officer from the bank often receives better training in assessment of the
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likelihood of the applicant repaying the debt than one from a retailer does.
Therefore, a bank usually produces a more prudent credit granting decision.
1.4. Consumer lending process
1.4.1. Steps in lending process
There is similarity in lending process between consumer credit and
business credit. The steps in the process are shown in order from a-f as below:
a. Finding prospective loan customers: Most loans to individuals arise from a
direct request from a customer who approaches a member of the lender’s
staff and asks to fill out a loan application. Sometimes loan officers will
call on the customers for months before they finally give the lending
institutions a try by filling out a loan application.
b. Evaluating a prospective customer’s character and sincerity of purpose:
Once a customer decides to request a loan, an interview with a loan officer

usually follows, giving the customer the opportunity to explain his or her
credit needs. The interview also provides a chance for the loan officer to
assess the customer’s character and sincerity of purpose. If the customer
appears to lack sincerity in acknowledging the need to adhere to the terms
of a loan, this must be recorded as weighing against approval of the loan
request.
c. Making site visit and evaluating a prospective customer’s credit record: In
case a mortgage loan is applied for, a loan officer often makes a site visit
to assess the condition of the property. The loan officer may contact other
creditors who have previously loaned money to this customer to see what
their experience has been.
d. Evaluating a prospective customer’s financial condition: If all if favourable
to this step, the customer is asked to submit several crucial documents the
lender needs in order to fully evaluate the loan request. Once all
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documents are on file, the lender’s credit analysis department conducts a
thorough financial analysis of the applicant, aimed at deciding whether the
customer has sufficient cash flow and backup assets to repay the loan.
e. Assessing possible loan collateral and signing the loan agreement: If the
loan committee approves the customer’s request, the loan officer or the
credit committee will usually check on the property or other assets to be
pledged as collateral. Once the loan officer and loan committee are
satisfied that both the loan and the proposed collateral are sound, the note
and other documents that make up a loan agreement are prepared and
signed by all parties to agreement.
f. Monitoring compliance with the loan agreement and other customer service
needs: The new agreement must be monitored continuously to ensure the
terms of the loan are being followed and all required payments of principal
and interest are being made as promised. A new loan customer’s
information is also saved as a customer profile to show and monitor a

customer’s condition and financial service needs.
1.4.2. Credit analysis
Credit analysis is considered the most important step in a lending
process. Result of credit analysis will mainly determine the approval of loan
committee towards granting decision.
a. Credit scoring system
Credit scoring can be defined as any quantitative method, technique or
practice used in the granting, management or recovery of consumer credit.
The basic principle is to assign some rating, or score, to an individual based
on the information that is known about them at the time of application. The
score is then taken as indicative of the future behavior of the applicant; that is,
the likelihood that the applicant will prove to be an acceptable risk. In
general, the higher the score is, the lower the risk is .
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In fact, there are many factors that make up a score card. Data such as
the applicant’s monthly income, outstanding debt, financial assets, how long
the applicant has been in the same job, whether the applicant has defaulted or
was ever delinquent on a previous loan, whether the applicant owns or rents a
home, and the type of bank account the applicant has are all potential factors
that may relate to loan performance and may end up being used in the
scorecard.
Based on statistics in the past on possible risks of those customers with
similar credit score, the bank offers a wide range of credit limit to customers
in different groups of score. The following is a sample of credit limits offered
to customers with different credit score at the mentioned US bank.
Table 1: Point-Scoring Schedule of Approved Credit Amounts

Point Score
Value or Range Credit decision
280 points or less Reject application

290-300 points Extend credit up to $1,000
310-330 points Extend credit up to $2,000
340-360 points Extend credit up to $3,000
370-380 points Extend credit up to $4,000
390-400 points Extend credit up to $6,000
410-430 points Extend credit up to $10,000
(Source: Peter Rose (2001), Commercial banking management, Irwin
McGraw-Hill, p. 602)
The main downside of credit scoring is its reliance upon the information
from which the original credit scoring system was constructed. If there are
certain types of application that were not considered or not available at the
time the system was developed, these cases will not be assessed in an optimal
capacity. Often this will affect small groups within the population who are
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overshadowed by the characteristics of the majority. For example, most credit
scoring systems will give low scores to people who have not lived very long
at their address, have recently started a new job, rent instead of own, or do not
have some previous credit history. Credit scoring system is designed to work
in tandem with Judgment Method.
b. Judgment Method
Judgment Method is a method in which the bank carries out qualitative
and quantitative analysis and judgment of the borrower so as to limit the
number of non-performing loans. In each case the aim of the underwriter was
to come to a somewhat subjective view as to whether or not the individual
was creditworthy.
While credit scoring is the norm, there are always some cases that
require manual review. There are also some non-mainstream lenders,
particularly in the sub-prime and door-to-door market, who do not apply
credit scoring. Thus the role of the underwriter remains, albeit in a
specialist or minority capacity, and is likely to do so for the foreseeable

future. It is also worth noting that while credit scoring is an accepted practice
in many developed countries, in areas where banking systems are less well
developed, judgmental decision making is still heavily relied upon. At the
core of the decision making process was the concept of the ‘Six Cs’ of credit
which the
lender looks for to review the borrower’s creditworthiness when
analyzing a loan package. The "Six C's" which consist of Character,
Capacity, Cash, Collateral, Conditions, and Control are the basic components
of credit analysis.
To establish if each of the Cs were satisfied, an underwriter would
examine the information supplied by the applicant, which might then be
combined with a credit report from a credit reference agency detailing the
applicant’s repayment record with other lenders. They would then use their
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intuition and experience to make a decision. As credit organizations
developed, it was common practice for the accumulated wisdom of the senior
underwriters to be distilled into a formal statement of lending practice.
1.5. Consumer credit performance
An operation is said to be conducted effectively when it helps increase
profit for an organization sustainably in accordance with legal framework and
the organization’s policies. To improve effectiveness of an operation, it is
worth considering what criteria and factors determine the operation’s
effectiveness. This is true to all forms of business, and consumer credit is no
exception.
There are many factors required for ensuring consumer credit activity
to be run effectively, namely marketing, corporate governance, risk
management, etc. However, regarding effectiveness of a credit activity, credit
performance is considered the most notable and critical factors among the
others. Also, there are many indicators and criteria that can be used to assess
credit performance.

In the scope of the thesis, only key performance indicators will be taken
into consideration in order to evaluate and quantify effectiveness of consumer
credit.
1.5.1. Qualitative indicators measuring credit performance
a. Legal framework
Consumer credit activities are said to be well performed when they are
carried out in compliance with related legal documents which are issued by
the central banks. A loan is impossibly said to achieve efficiency if
regulations on the loan are violated. For example, the bank deliberately
provides fund for its customers to spend on items that are prohibited by law;
or the bank carries out debt refinancing. Those activities are considered to be
against the rule although they produce massive profit for the bank.
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a. The bank’s lending policy
Each bank draws up its own business strategy which is a critical
condition for the consolidation of lending operations and also earns the bank
maximum benefit. A so-called efficient loan is not only in compliance with
basic process of credit but also flexible according to each type of customer.
An effective lending policy will help the bank lessen unexpected risks.
b. Lending operations
Before providing fund, the bank should come to an agreement with its
customer about his or her using the fund, time to pay principal and interest on
the loan, solutions in unavoidable and unforeseen circumstances, etc. A loan
is said to perform well if the credit agreement is honored.
1.5.2. Quantitative indicators measuring credit performance
a. Outstanding loans
Outstanding loan enables the bank to increase its income. It is the
difference between the amount of loan and the amount of repayment in a
certain term of a credit agreement. Profit from lending activities is typically
the product of interest rate on the loan, term of credit agreement, and

outstanding loans. Therefore, the higher the amount of outstanding loans is
the higher profit a bank produces. An increase in outstanding loans may be
resulted from increase in the size of loans and the number of borrowers.
- Absolute value of increase in consumer outstanding loans:
- Relative value of increase in consumer outstanding loans:
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- Proportional increase in consumer outstanding loans:
b. Delinquent loans
This is the most effective indicator used to evaluate credit risks. An
overdue loan is a loan in which borrower’s repayment to the bank is overdue.
Among overdue loans, non-performing loans attribute drastically to the
assessment of credit performance. The higher ratio of non-performing loans
over total outstanding loans is, the poorer performance on credit is. The ratio
depends on both overdue loans and total outstanding loans. If the total
outstanding loans go up while the amount of overdue loans remains
unchanged, then efficiency in consumer credit is said to demonstrate
successfully. However, if the growth of delinquent loans is greater than the
growth of total outstanding loans, then credit is said to produce dismal
performance.

c. Input-output differential
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The indicator reveals expected return on the total capital mobilized. The
higher the indicator is, the higher the performance of using funds appears.
1.6. Necessary and sufficient conditions for better consumer credit
performance
1.6.1. Necessary conditions
Banking industry is a non-monopolistic business where banks go into
competition with each other in terms of their own capacity. The capacity of a

bank depends closely on the following factors:
a. Lending policy
Each bank develops its own lending policy which is appropriate to
certain circumstances and certain period of time. The policies should be
designed so as to improve credit performance of the bank itself. The basis of a
lending policy is comprised of policy on customers; policy on size of loans
and line of credit; policy on term of agreement, interest rate and collateral.
- Policy on customers: There is a broad range of customers coming to
the bank for loans. Therefore, the bank should make a thorough analysis of
each customer’s characteristics in order to formulate proper policy for each
category of borrower. This will contribute to the bank’s better credit
performance and sustainable development.
- Policy on interest rate: Interest rate is the greatest concern when the
customer asks for a bank loan. Thus, an appropriate policy on interest rate
will help the bank attract a large number of customers as well as raise its
credit performance.
- Policy on collateral: The bank’s determination secured asset is based
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on credibility of the customer. Collateral helps the bank minimize the risk
caused by customer’s default or in case of customer’s unwillingness to repay
debts. The value of asset also plays an important part in the bank’s decision
on size of loans.
Lending policy basically exerts a considerable impact on the bank’s
credit performance. The gains in credit efficiency can only be only achieved if
the bank sets its own credit policy which is consistent with its characteristics
and certain economic conditions.
b. The quality of loans
The quality of a loan is evaluated in terms of customer’s ability to repay
principal and interest applied on the loan by the due date that is stated in the
credit agreement. In pursuit of huge profit, a bank possibly offers loans which

are of high risk, leading to poor credit performance when borrower is in
default. However, excessive caution of the bank also produces disappointing
performance. The quality of a loan depends on credit officers’ ability to
undertake an assessment.
c. Financial and management capacity of the bank
Financial capacity of the bank is demonstrated by such financial
indicators as ROA, ROE, scale of equity, growth over the time, the proportion
of overdue loans against the total outstanding loans, etc. A bank which is of
solid financial base has comparative advantages in improving credit
efficiency because such bank rarely misses good investment projects due to
its shortage of capital resource. Besides, bank with considerable management
ability usually has its external and internal risks spread by diversifying its
lending portfolio.
d. Professional skills of credit officers
In lending activities, credit officers always play an important role in the
bank’s decision on providing fund. This comes from a fact that credit
performance depends mainly on evaluation procedures made by the
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underwriters. A capable officer produces a careful assessment of loan
application which helps lessen unforeseen risks for the bank, and reversely.
1.6.2. Sufficient conditions
Economic environment has direct effects on both banks and borrowers.
That the more one believe in the development of the economy, the more he
consumes results in an increase in consumer credit. However, when the
economy is faced with crisis, consumers tend to spend money more
cautiously, leading to unexpected credit performance in banking industry.
Social and cultural environment including lifestyle, habits, and so on
also affects credit performance. People with higher education level and more
stable source of income often ask for bank loans to finance their consumptive
demand so as to improve their living standards. However, those with average

level of income usually need funding to cover basic necessities.
The development of science and technology also allows banks to
design proper lending policies for each group of customers. This minimizes
operating costs and time for credit assessment, raising accuracy of
information system which leads to improvement in credit performance.
1.7. Consumer credit in Europe and lessons applying for Vietnam
1.7.1. Overview on consumer credit in Europe
Consumer credit plays an important role in the EU economy. In Europe,
consumer credit came into being later than other kinds of credit. However, it
has met consumer’s demand in many developed countries and become
popular in Europe. This part therefore would describe briefly the overall
picture of consumer credit activity in European countries.
There is a variety of credit products which are in compatibility with the
development of the Western economies, namely the following types:
- Stock trading loans: provide fund for investors who wish to possess and
trade potential stocks in the stock market.
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- Guarantee: is service in which the bank guarantees consumption or
investment activities.
- Mortgage loans: provide fund for individuals in case of buying or
renovating assets of high value such as lands or houses.
- Consumer credit: covers the provision of goods and services, provided
to individuals to cover the purchase of basic needs.
At the end of December 2008, consumer credit outstanding stood at
884 EUR billion or 7 per cent of the EU GDP; and accounting for just over 17
per cent of household’s consumption expenditure. The size of the market for
consumer credit is estimated to be 1 236 EUR billion or almost 10 per cent of
the EU GDP if data reported by OFIs is also included. The true size of
the market is, however, likely to be larger, considering that the scale of
OFI activity is not known in all Member States. Europe’s six biggest

consumer credit markets – the United Kingdom, Spain, Germany, France,
Italy and Poland – accounted for almost 80 per cent of the total consumer
credit outstanding in December 2008.
The EU consumer credit market is fragmented. There are significant
differences between national consumer credit markets, in terms of market size
and structure, products offered and consumer demand.
The supply of consumer credit products is rapidly changing with
the emergence of new distribution channels and product innovations
reflecting the recent change in consumer demand pattern from less
personalized / local branch shopping to increased use of electronic
distribution channels. This is likely to favor future integration in consumer
credit markets.
In Europe, creditors have been taken advantage of the Internet to
provide convenient consumer credit products. Specialized consumer credit
providers have developed online applications on their websites along
with partnerships with retailers/motor dealers that allow consumers to
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apply for consumer credit directly on a lender’s website or on the
website of the supplier of the good/service. For example, customers can
apply for the John Lewis
4
Partnership card online. This card is issued and
managed by John Lewis Financial Services Limited which is a member
of the HSBC Group of Companies.
Regarding marketing and co-branding, in the UK, financial institutions
have started advertising products on social networking sites such as Facebook
and Twitter. Also, consumer research, carried out in the UK by PwC in May
2007
5
, illustrates the growing popularity of (and demand for) financial

products aimed at addressing climate change.
• Consumer Credit Directive
The Consumer Credit Directive
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was adopted by the European
Commission in April 2008, with an ensuing date for completing the
transposition set for June 2010 for all Member States. This Directive
replaces the 1986 Consumer Credit Directive (and amendments made to
this Directive). The new Consumer Credit Directive aims to “facilitate
the emergence of a well functioning internal market in consumer credit” and
to ensure that all consumers in the Community enjoy “a high and
equivalent level of protection” of their interests.
The Directive focuses on transparency and consumer rights. It provides
for a comprehensible set of information to be given to consumers in good
time before the contract is concluded and also as part of the credit agreement.
In order to enhance the comparability of different offers and to make the
information better understandable, the pre-contractual information needs to be
supplied in a standardized form (Standard European Consumer Credit
Information), i.e. every creditor has to use this form when marketing a
4
John Lewis is a UK based department store (website: www.johnlewis.com).
5
Precious Plastic 2008: Consumer credit in the UK. PricewaterhouseCoopers.
6
DIRECTIVE 2008/48/EC OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL issued on 23
April 2008 on credit agreements for consumers and repealing Council Directive 87/102/EEC.
Link: />20
consumer credit in any Member State. The Directive foresees in addition two
essential rights for consumers: they are allowed to withdraw from the credit
agreement without giving any reason within a period of 14 days after the

conclusion of the contract. They also will have the possibility to repay their
credit early at any time, while the creditor can ask for a fair and objectively
justified compensation.
1.7.2. Lessons applying for Vietnam
Experience from consumer credit in European countries is always
worth considering. Even though there are differences in political,
socioeconomic, and financial system between European zone and Vietnam;
Vietnam still can learn from EU’s lessons in terms of consumer credit. This
not only comes from the fact that consumer credit has been developed in
Europe long before, but is also due to two following reasons. Firstly, model of
modern banking in which consumer lending is set as one of development
targets was originated from EU. Secondly, Vietnam has been following
European standards on banking laws and regulations, Basel Accords, in order
to regulate and monitor its banking system.
Therefore, model of consumer credit in EU is expected to help Vietnam get
experiences and lessons on building a consumer credit market which is of
sustainability and high quality.
Experiences and lessons drawn from EU concerns the following issues:
a. Advertising: Following regulations on advertising in The Consumer Credit
Directive, Vietnam should set out new mandatory requirements on
standard information to be provided in advertising covering the borrowing
rate and any charges included in the total cost of credit to the
consumer together with a representative example.
b. Pre-contractual information and contractual information requirements:
According to The Consumer Directive, pre-contractual information must
be provided by means of a Standard European Consumer Credit
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Information (SECCI) form. From this experience, Vietnam should design
such a unified form for all the banks operating in Vietnam to use and
follow.

c. Market segmentation: In Europe, innovation in products is based on
identifying and targeting market segments. Such a process relies on the
identification of a specific population group and the development of
products and/or services that will meet the needs and wants of such a
group. This is one of the most important and useful experience for
Vietnam to develop its consumer credit activity in terms of quality.
d. Distribution channels: Consumer credit products can be offered to
consumers using direct (e.g. in branches) or indirect distribution channels
(e.g. at point of sale). Innovation in distributing credit products to
customers in Europe is much diversified, including: branches, mailing,
telephone, internet, point of sale, etc. There has been an increasing use of
the internet as a major distribution channel for consumer credit
products. In order to modernize banking system, Vietnam should develop
and apply Internet as well as other technological improvements to offer
new types of products and services.
e. Marketing and co-branding: Innovation in consumer credit markets can
consist of marketing campaigns and co-branding of consumer credit
products. It is worth highlighting the development of: i) co-branded credit
cards which can be associated with special services or advantages when
consumers purchase goods in specific stores or can be used as a
public transportation pass; and ii) co-branded affinity cards which are
credit cards offered in association with a non-commercial organization
(e.g. Sports club, charity organization etc). This is a trend of development
that Vietnam may apply in the future.
f. Problems of inadequate information: In EU, it appears that lack of
transparency relating to interest rate rises and fees and charges applied by
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lenders are the main areas of concern for consumers in several Member
States. However, not only consumers are less well informed than are
suppliers of financial services, creditors also have difficulty in accessing

completely and fully customers’ information such as financial status. In
Vietnam, only when problems of asymmetric information are dealt with,
can consumer credit develop sustainably and thoroughly.
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CHAPTER 2: CONSUMER CREDIT ACTIVITIES IN
VIETNAM’S COMMERCIAL BANK SYSTEM
This chapter will give an insight into consumer credit activity in
Vietnam’s commercial banks. Upon analyzing and evaluating data concerning
consumer credit, the thesis focuses on providing the very overview on current
state of consumer lending in Vietnam through qualitative and quantitative
indicators.
2.1. Overview of Vietnamese economic outlook
In general, Vietnamese economy in 2009 happend in unfavourable
condition in both domestic and foreign context. Immanent reasons continue to be
shown and heavily affect the economic development and sustainability.In that
unfavourable context, the Government always watched for the economic
situation, considered problems raising strictly and issued decisions and policies
timely to limit the negative impacts and to create favourable conditions for
economic development.
Thanks to timely, concentrated and decisive directing and governing by the
Party and the Government; the efforts and initiatives in overcome difficulties by
ministries, provinces, enterprises and all the people, our country has gained
many positive results and prevented economic recession. The results of The
socio-economic development Plan in 2009 are illustrated in 3 aspects: (1)
Preventing economic recession and maintaining rational and sustainable
economic growth rate; (2) Maintaining macroeconomic stable and preventing
the return of high inflation; (3) Ensuring social security, developing works of
culture, education, health and other social sectors.
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Table 2: Some economic indicators in 2009

Implemented in 2009
GDP growth rate 5.32%
Export and import turnovers
Export turnovers USD 56.6 billion
Import turnovers USD 68.8 billion
Trade deficits USD 12.2 billion
Total development investment (% of
GDP)
42.6% (VND 702.4
thousand billion)
CPI in December 2009 compared to
December 2008
6.52%
Total state budget revenue VND 390,650 billion
State budget deficit (% of GDP) 6.9%
(Source: The Government’s report on the Socio-economic situation in
2009)
Economic development growth rate: In 2009, although the economic
growth rate was lower than the growth rate of 6.18 percent of 2008, it over-
fulfilled the target of 5 percent. It can be said that it is the success in the global
economic recession context and many economies witnessed the minus economic
growth rate.
High inflation prevention: The Government has developed measures
drastically and consistently in order to prevent the return of high inflation, to
recover and stimulate production and business, especially in domestic market;
the Government had directed and governed fiscal and monetary policies, as a
result, the 2009’s inflation ratio was not too high.
Finance and monetary markets: Commercial banks were favored of demand
stimulus packages, in which, the 4 percent interest rate supporting package has
been recognized widely that it has successfully fulfilled its function in rescuing

enterprises and then helping banks and enterprises to reduce their bad debts. As a
result, many banks gained positive results in 2009 albeit before that they faced
many difficulties in liquidity, increase in bad debts and decline in profits due to
the increase in interest rate when implementing tight monetary policy in 2008.
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