Borrowers struggle to benefit from new lending policy

A bank teller counts cash at a transaction office in Hanoi. (Photo: VNA)

Hanoi - Borrowers are finding it challenging to obtain new loans from banks to settle their existing debts at a different bank, despite the recent implementation of a regulation permitting debt transfer.

The State Bank of Vietnam's Circular No 06/2023/TT-NHNN, effective from September 1 this year, enables borrowers to secure loans from alternative banks to settle their outstanding loans at their original bank.

Since the introduction of this lending policy, banks have offered appealing interest rates, as low as 6-7% per annum, to entice new clients. Nonetheless, borrowers have reported difficulties in moving their current debts to a different bank to benefit from reduced interest rates.

A borrower said he was especially interested in this new lending policy as he had borrowed nearly 2 billion VND from a bank three years ago to buy an apartment and the interest rate of the loan is currently more than 14% per year. He therefore hoped to get a new loan from another bank that is introducing a low interest rate of 6-7%.

However, after working with the new bank, he discovered the low rate is only applied during the preferential period of 24 months at most. Since he borrowed three years ago, the preferential period had expired. Therefore, even if he transfers the debt to the new bank, they will apply a floating interest rate of around more than 10% per year. If calculated carefully, the total amount he would have to pay is almost the same at both banks. Besides the interest rate, he would also need to pay other fees such as an early repayment fine and appraisal fee to transfer the loan to the new bank.

Another borrower also learned about the new lending policy and found it was infeasible for her family to benefit from the policy. She explained that if she wants to transfer her loan to a new bank to enjoy the lower interest rate, she would need to pay off the loan at the old bank, satisfy the mortgage, and then remortgage the asset to secure a loan at the new bank. Alternatively, she could use another asset as collateral for a loan at the new bank. However, the borrower said both measures are not feasible for her family because she cannot borrow enough to pay off the old debt and release the collateral, nor remortgage with a new asset.

Finance expert Dinh Trong Thinh said that in theory, the new lending policy provides borrowers with more flexible options. For instance, if they find another bank offering better incentives or lower interest rates for loans, they can opt to borrow from that bank to repay their current loan at the original bank. This forces banks to compete fairly, equitably and healthily in the loan market. However, most large loans at banks require collateral. Thus, it is challenging for borrowers to prepay their debts at one bank and have collateral to borrow from another.

Thinh proposed that the State Bank of Vietnam allow commercial banks to lend based on the existing collateral. He explained that as information about loans and collateral is available at the information centre of the banking system, banks can facilitate conditions for borrowers to transfer debts from one bank to another without having to satisfy the mortgage from the old bank.

The new bank can use the available information about collateral at the old bank to re-evaluate and approve loan applications, instead of requiring customers to remortgage another asset or satisfy the mortgage at the old bank. This would make it easier for borrowers to access new loan sources, and banks would also become more competitive, Thinh said.

Businesses hoping for flexibility with lending conditions Businesses are still up against it when it comes to applying for bank loans, even though Vietnam’s central bank has cut interest rates several times already this year.

Lending rate lag still causing bank unease Banks remain in a phase of inventory, facing challenges in the active monetisation of funds and resulting in an accumulation of excess liquidity.