A member of staff at FE Credit introduces financial packages to a customer. (Source: VNA)Hanoi (VNA) - The Vietnam Chamber ofCommerce and Industry (VCCI) has suggested the State Bank of Vietnam (SBV)reconsider a proposal on limiting unsecured personal loans in cash by consumerfinance companies.
The move was made after the SBV recentlyreleased a draft circular to amend Circular No. 43/2016/TT-NHNN stipulatingconsumer lending by financial companies.
The proposed changes under the draft circularinclude limiting unsecured personal loans in cash to existing customers withgood credit and no overdue debt; and limiting the maximum amount of such cashloans to 30 percent of total loans.
In financial companies, cash loans are one ofthe main products besides instalment loans and credit cards. Target customersof these product packages are more than 50 percent of the country’s populationwho do not have a bank account and have an average income of only 3-5 millionVND (129-215 USD) per month, depending on the requirements of each company.
As explained by the SBV, cash loans are at highrisk of becoming non-performing loans (NPLs) as they don’t require collateraland declaration 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 shouldbe limited to finance companies’ existing customers with good credit historyand no overdue debt.
However, according to the VCCI, the SBV shouldexplain more clearly the necessity of the regulations as no statistics on NPLsof consumer finance companies have been released yet.
Especially, the VCCI noted, the application of thenew regulations should be scrutinised when the Government is taking measures tofight loan sharks.
“Should the regulations be applied as it will increasecosts of financial companies, making it more difficult and expensive forborrowers to access to consumer loans?” the VCCI asked.
Experts also said though the proposedregulations would contribute to controlling bad debts, it would cause theGovernment difficulty in implementing its policy to fight loan sharks.
According to banking expert Nguyen Tri Hieu,without consumer loans with easy requirements from finance companies, borrowerswithout collateral and low income will have to depend on loan sharks.
However, in a credit outlook report releasedrecently, the international ratings agency Moody’s Investors Service backed theSBV’s proposal.
According to Moody’s, the proposal is credit positive forVietnamese finance companies because the stricter regulations will helpalleviate asset quality pressure by curbing excessive growth in the riskierconsumer-loan segment, which will lead to stronger risk-adjusted returns andwill support internal capital generation in the future.
Vietnam’s consumer finance industry grew at acompound annual rate of 41 percent between 2013 and 2017 on the back of higherpersonal income and greater penetration of services.
Moody’s expects growth in personal loans to slowsignificantly when the new regulations come into effect, after far exceedinggrowth over the past three years for other less-risky consumer loans, such asthose for the purchase of motorcycles and durables.
The demand for consumer finance is strong andsupported by the buoyant Vietnamese economy.
Now, finance companies constrained fromextending new personal unsecured loans because of the new regulations willfocus on growing other product segments and will benefit from increaseddiversification in their lending portfolios and more emphasis on lower-risk products.-VNS/VNA
