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Official Gazette

Tuesday, September 26, 2017

State Bank proposes stricter rules on consumer lending

Updated: 11:47’ - 07/10/2014

In the future, commercial banks will be allowed to provide consumer loans only to “standard” customers, according to a draft circular recently released by the Central Bank.

“Standard” customers are those with medium- or high-level incomes or good credit scores or history, the draft circular says.

If wishing to provide consumer loans to “non-standard” customers, banks would have to set up subsidiary finance companies.

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Commercial banks would have to set up subsidiary finance companies for consumer lending__Photo: Internet

Meanwhile, finance companies will no longer be allowed to provide home loans but may still provide consumer credit through hire-purchase arrangement, overdraft via credit cards and issue buyers’ passes.

According to the Central Bank, there are currently no specific legal regulations on consumer lending despite the fact that this operation has become a major trend in the country. Therefore, a legal document regulating this operation should be enacted.

 However, banking experts seem unpleasant with the proposal.

“State management agencies should not intervene into professional operations of commercial banks through administrative decisions but should allow banks to make decisions by themselves as long as they observe the law,” a senior banking expert told the Banking Review. “If deeming it necessary to establish or acquire finance companies, commercial banks will do so at their own will,” he added. 

Admitting that the delegation of consumer credit to subsidiary finance companies may help commercial banks specialize and professionalize that operation, a high-level banking manager said this was not an easy job for banks, even if they so wished. Small- and medium-sized banks have made considerable investment to boost consumer credit, targeting “non-standard” customers that wish to borrow small loans valued between hundreds and thousands of dollars. Surely, they would face enormous difficulties if losing these customers.

“The requirement to establish subsidiary finance companies for consumer lending would also become a burden for banks that, even yet, dare not to think about increase of charter capital,” he said.      

The draft circular additionally stipulates that finance companies may reach agreement with their consumers on interest rates which, however, would be based on consumers’ solvency but must comply with the Central Bank’s regulations. In addition, interest rates on overdue debts must be made public and must not exceed 150 percent of interest rates stated in lending contracts.

Commercial banks and finance companies are the two major providers of consumer loans in Vietnam. Over the recent years, several commercial banks have set up subsidiaries specialized in consumer lending, including HDBank which bought Viet-SG Finance Company, and VPBank, which purchased Vietnam Coal-Mineral Finance Company.-


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