Regulations on personal unsecured lending by consumer finance companies will be tightened. (Photo: VietTimes.vn)Hanoi (VNS/VNA) - Regulations onpersonal unsecured lending by consumer finance companies will be tightened if adraft circular of the State Bank of Vietnam (SBV) takes effect.
Under the draft circular to amend the CircularNo. 43/2016/TT-NHNN stipulating consumer lending by financial companies, thecentral bank proposes to limit unsecured personal loans – known in Vietnam as‘cash loans’ – to existing customers with good credit history according to theinternal regulations of the finance company and no overdue debt according tothe classification of the SBV’s Vietnam National Credit Information Centre atthe time of signing the consumer loan contract.
In addition, financial companies must ensure tolimit the maximum amount of ‘cash loans’ to 30 percent of their total consumerloans.
In financial companies, ‘cash loans’ is one of themain products besides instalment loans and credit cards. Target customers ofthese product packages are more than 50 percent of the country’s population whodo not have a bank account and have an average income of only 3-5 million VND (129-215USD), depending on the requirements of each company.
As explained by the SBV, ‘cash loans’ are athigh risk of becoming non-performing loans as they don’t require collateral anddeclaration of borrowing purposes. With easy requirements and simpleprocedures, cash loans are an easy way to develop credit even though lendinginterest rates are much higher than those of banks.
Therefore, to ensure consumer lending forsustainable, healthy and efficient development, the SBV said ‘cash loans’should be limited to finance companies’ existing customers with good credithistory and no overdue debt.
According to business information providerStoxPlus, financial companies tend to shift to ‘cash loans’ and credit cardsdue to rapidly rising demand from people without bank accounts and low incomeswhile the form of instalment lending to buy cars and appliances at stores andretail shops has become saturated.
Financial companies do not disclose theproportion of the cash loan segment in the total consumer credit balance butobservers believe it would be significant.
For example, in HD Saison, according to VietDragon Securities Company’s estimates, the proportion of cash loans in theportfolio is kept at 32 percent in 2018, compared with 41 percent of motorbikeloans and 25 percent of loans for durable consumer goods.
This rate may be even higher in new financecompanies as they boost lending right from launch instead of jumping intofierce competition in instalment lending. For example, right from launch inOctober 2018, Easy Credit, a brand of EVN Finance, launched a loan package forcustomers with income from only 4.5 million VND. SHB Finance, launched in August2018, also aimed at the cash lending market with a series of products forcustomers with an average income from 3 million VND.
Besides regulations on disbursement forms forconsumer finance loans, the draft circular also adds that financial companies cannotclaim debts for organisations and individuals who have no obligation to repaydebts.
The new regulation is made as some financecompanies have used strong tactics to recover loans, causing big concern amongthe public. For example, though not borrowing money from a finance company, aresident in Hanoi frequently received threatening phone calls from thecompany’s staff to ask for repayment. This was because when declaring arelative to borrow money from the finance company, a borrower used the resident’sphone number when he in fact didn’t know the borrower.
The draft circular also states the loan contractwill not include threatening measures for borrowers as many people said someconsumer finance companies hired gangsters to collect debts.
According to the Department of Competition andConsumer Protection under the Ministry of Industry and Trade, the sectorsreceiving the most complaints in 2018 were finance, banking and insurance. Ofwhich, the complaints mainly related to consumer lending services of financecompanies with many acts violating consumers’ interests such as providinginaccurate, incomplete and confusing information; not providing contracts forborrowers after signing; and recovering debt with threatening measures.
Banking expert Nguyen Tri Hieu said though theproposed regulations would contribute to better controlling bad debts, it wouldcause the central bank difficulty in implementing its policy to fight loansharks.
“Without consumer loans with easy requirementsfrom finance companies, borrowers without collateral and low income will haveto depend on loan sharks,” Hieu said.-VNS/VNA
Under the draft circular to amend the CircularNo. 43/2016/TT-NHNN stipulating consumer lending by financial companies, thecentral bank proposes to limit unsecured personal loans – known in Vietnam as‘cash loans’ – to existing customers with good credit history according to theinternal regulations of the finance company and no overdue debt according tothe classification of the SBV’s Vietnam National Credit Information Centre atthe time of signing the consumer loan contract.
In addition, financial companies must ensure tolimit the maximum amount of ‘cash loans’ to 30 percent of their total consumerloans.
In financial companies, ‘cash loans’ is one of themain products besides instalment loans and credit cards. Target customers ofthese product packages are more than 50 percent of the country’s population whodo not have a bank account and have an average income of only 3-5 million VND (129-215USD), depending on the requirements of each company.
As explained by the SBV, ‘cash loans’ are athigh risk of becoming non-performing loans as they don’t require collateral anddeclaration of borrowing purposes. With easy requirements and simpleprocedures, cash loans are an easy way to develop credit even though lendinginterest rates are much higher than those of banks.
Therefore, to ensure consumer lending forsustainable, healthy and efficient development, the SBV said ‘cash loans’should be limited to finance companies’ existing customers with good credithistory and no overdue debt.
According to business information providerStoxPlus, financial companies tend to shift to ‘cash loans’ and credit cardsdue to rapidly rising demand from people without bank accounts and low incomeswhile the form of instalment lending to buy cars and appliances at stores andretail shops has become saturated.
Financial companies do not disclose theproportion of the cash loan segment in the total consumer credit balance butobservers believe it would be significant.
For example, in HD Saison, according to VietDragon Securities Company’s estimates, the proportion of cash loans in theportfolio is kept at 32 percent in 2018, compared with 41 percent of motorbikeloans and 25 percent of loans for durable consumer goods.
This rate may be even higher in new financecompanies as they boost lending right from launch instead of jumping intofierce competition in instalment lending. For example, right from launch inOctober 2018, Easy Credit, a brand of EVN Finance, launched a loan package forcustomers with income from only 4.5 million VND. SHB Finance, launched in August2018, also aimed at the cash lending market with a series of products forcustomers with an average income from 3 million VND.
Besides regulations on disbursement forms forconsumer finance loans, the draft circular also adds that financial companies cannotclaim debts for organisations and individuals who have no obligation to repaydebts.
The new regulation is made as some financecompanies have used strong tactics to recover loans, causing big concern amongthe public. For example, though not borrowing money from a finance company, aresident in Hanoi frequently received threatening phone calls from thecompany’s staff to ask for repayment. This was because when declaring arelative to borrow money from the finance company, a borrower used the resident’sphone number when he in fact didn’t know the borrower.
The draft circular also states the loan contractwill not include threatening measures for borrowers as many people said someconsumer finance companies hired gangsters to collect debts.
According to the Department of Competition andConsumer Protection under the Ministry of Industry and Trade, the sectorsreceiving the most complaints in 2018 were finance, banking and insurance. Ofwhich, the complaints mainly related to consumer lending services of financecompanies with many acts violating consumers’ interests such as providinginaccurate, incomplete and confusing information; not providing contracts forborrowers after signing; and recovering debt with threatening measures.
Banking expert Nguyen Tri Hieu said though theproposed regulations would contribute to better controlling bad debts, it wouldcause the central bank difficulty in implementing its policy to fight loansharks.
“Without consumer loans with easy requirementsfrom finance companies, borrowers without collateral and low income will haveto depend on loan sharks,” Hieu said.-VNS/VNA
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