Consumption loans jump in HCM City

Consumer credit in HCM City has grown by an average of 20 per cent per year during 2012-2015, according to the State Bank of Viet Nam. - Photo

Nguyen Hoang Minh, Deputy Director of State Bank’s HCM City branch said consumption loans during this period accounted for between 6 per cent and 8 per cent of the city’s total outstanding loans.

This figure, he said, has strongly increased this year. By the end of October this year, it was VND201 trillion (US$8.9 billion), accounting for 14.7 per cent of the city’s outstanding loan.

This figure will continue to rise, Minh said, explaining that 40 per cent of consumption loans in HCM City are for buying cars, houses and housing upgrades.

To develop consumption lending activity in HCM City in particular and in the country in general, Minh said that the State Bank was collecting ideas to further develop a consumption loan draft law, which is planned to be effective next year.

This is the second time that the SBV has sought to collect ideas about consumer credit. Until now, regulations have applied to all lenders, including banks and credit companies, even though their borrowers are different.

Thus, the new draft regulation is aimed at helping to create convenient conditions for both borrower and lender as well as to have a more transparent market.

At a recent conference organised in HCM City, Bui Quang Tin, an expert from Banking University in HCM City said the second draft had many updates necessary for the current time when consumption lending is strongly developing.

“It is amended with stricter regulations and will help the market to be more stable,” Tin said.

The new draft would help consumers get official loans from credit companies instead of from the black market, he said.

Sharing the same idea, Vuong Thuy Tien, a high-ranking official from private lender Home Credit Viet Nam said the draft had clear regulations about the rights and responsibilities of credit companies.

“This is an important amendment in order to have a sound credit market as well as to protect customer rights,” she said.

However, experts say that some of the proposed changes to the regulation don’t reflect reality.

One among them is the proposed regulation saying that the maximum consumption loan should be VND10 million (US$444).

Pham Hai Van, Legal Director of FE Credit, said this level was too low.

She explained that the current smallest loan to buy a motorbike was about VND17 million ($772).

Sharing the same idea, Tien from Home Credit said loans ranging from VND10 million ($444) to VND30 million represented 71 per cent of her company’s total contracts.

Only 10 per cent of contracts are valued under VND10 million.

They also said that the maximum interest rate for overdue debt of 150 per cent per month on top of the initial interest rate in the proposed regulation was not high enough.

Tien said this regulation would force credit companies to change their products. For instance, Home Credit is currently able to charge 0 per cent interest on about 65 per cent of the company’s debt. If the proposed cap of 150 per cent on overdue loans were implemented, Home Credit would not be able to afford to offer loans with 0 per cent interest rates.

This new regulation should not be applied to loans with tax exemptions, she said, adding that that would cause difficulties for a credit company to control bad debt.

Tin said “currently, the draft protects consumers more than credit companies, who would face many difficulties in getting loans back.”

He suggested applying a maximum interest rate of 200-250 per cent in addition to the initial rate for bad debt. For debt with tax exemptions, the rate should be based on the amount of debt that the consumer had not paid.

Minh affirmed that State Bank of Viet Nam was still collecting ideas from related subjects. All ideas would be sent to the bank for further consideration.