|
Consumer installment loans shrinking
While domestic commercial banks are tightening consumer credit, some foreign companies are conquering the market, offering loans with simple procedures but high interest rates.
In September 2007, SG VietFinance became the first 100% foreign-owned company to provide consumer credit in Vietnam. It has been funding installment purchases of motorbikes, laptops and household furnishings.
Since SG VietFinance, Prudential Finance Company (PruFC), US-based GE Money and Czech’s PPF have also been licenced to provide consumer credit.
The companies target young customers and they do not require collateral assets for the loans as banks do. The borrowers only need to have the monthly income of VND2-3mil at minimum and pay 20-30% of the value of the products they are going to purchase. The values of the loans may reach VND200mil and the borrowers pay by installments for six months to three years.
The simple procedures prove to be very attractive to young consumers, who have high consumption demands but do not have big sums of money. However, in return for the simple procedures, the companies set very high interest rates. Since the end of June 2008, SG VietFinance has slashed the lending interest rate to 1.75%/month, or 21%/year; however, borrowers have to pay the loaning fee of 7% of products’ values, which means that clients have to pay interest rates of 2.2-2.75% a month.
Giac Mo De Dang Co Ltd is providing loans with the interest rate of 2.5% per month, and clients do not have to pay additional fees. Prudential Finance is loaning at 1-1.15% per month, but only to select clients. Everyday, the company receives 350-400 applications for borrowing money, but it only approves 15% of the applications.
Banks tightening consumer credit
At the end of 2007, banks rushed to launch consumer credit programmes. East Asia Bank (EAB) teamed up with Nguyen Kim Shopping Centre to provide loans at 0% interest. Eximbank, Techcombank, Mekong Housing Bank and Habubank also jumped onto the bandwagon.
However, the movement has lost momentum as banks have been ordered not to let their credit growth rate exceed the 30% threshold. EAB General Director Tran Phuong Binh said that the bank only considers providing consumer loans for loyal clients. The General Director of another joint-stock bank said that the bank has received a lot of applications for loans for repairing houses, purchasing motorbikes, and upgrading interior decoration. However, as the bank’s credit growth rate has nearly hit 30%, the bank has had to lock its ‘credit valve’.
Not only commercial banks, consumer credit companies also revealed that since they had to cut the lending interest rate to 21%, they had to tighten consumer credit because of high risks and low profit. A company said that non-performing loans may reach 18% of the total outstanding loans. A lot of clients cannot pay debts, others have died or have changed their addresses.
Consumers keep cautious
Thu, who lives in district 3, HCM City, said that at first, she intended to borrow money from SG VietFinance to purchase an Attila Elizabeth at VND32mil and pay in installments over 12 months. However, she still cannot make a decision because the sum of money she would have to pay immediately is very high, VND10.5mil (VND2.065mil for 7% of loaning fee, VND2.5mil for motorbike ownership registration and VND5.9mil or 20% of the motorbike value as required).
Thu earns VND4mil a month, and after deducting the sum of VND2.36mil a month she would have to pay for the motorbike, only VND1.6mil is left, which is not enough for her to cover basic needs in the context of skyrocketing commodity prices.
Tam in Phu Nhuan district in HCM City has also cancelled his plan to purchase a Future Neo by installments due to the overly high interest rates. He said that commodity prices are skyrocketing, while salaries are staying put.
VNN
|
