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Banks escape consumer credit, finance companies take their place
While commercial banks have tightened consumer loaning, some finance companies have been trying to lure clients by launching a lot of new products.
In April 2007, banks noisily began launching consumer credit services, while experts talked about the boom and the strong development of the consumer credit market. And they had every reason to believe in the robust growth of the market.
An Binh Bank once provided loans valued at 10-12 times higher than the clients’ income with the interest rate of 0.75%-1%/month. The only requirement the clients had to satisfy was that they had to have the minimum net monthly income of VND2mil.
Asia Commercial Bank previously also lent sums of money 10-12 times higher than clients’ incomes, provided the clients had the monthly income of at least VND3mil/month.
However, banks have stopped providing consumer credit in their strategy to tighten credit. Some of them still maintain the service, but are very cautious when loaning.
Explaining this, Deputy General Director of Asia Commercial Bank (ACB) Nguyen Thanh Toai said that banks now have to tighten credit as requested by the State Bank of Vietnam. As ACB has reached the ceiling credit growth rate of 30% as set by the central bank, it has stopped lending.
Moreover, as lending interest rates have skyrocketed, the rates have become unaffordable for many clients. Toai said that only when the national economy comes back to normal will the banks resume consumer credit.
However, while banks are trying to escape from the market, finance companies eagerly assumed their position, launching a lot of new products onto the market.
Prudential Finance Company, for example, is providing loans to fund the purchases of houses, home appliances and electronic products. The company has been moving ahead with services which seem to be very risky, like funding business start-ups. The clients have to have the monthly income of VND4mil and higher, and pay the interest rate of 1.75% per month.
100% French-owned SG Viet Finance has announced it provides consumer credit with no collateral assets required. The loans will be valued at VND3-200mil, and will allow clients to purchase electronics products and home appliances, home furniture and motorbikes.
The interest rates will be defined based on the market supply and demand. Clients will be able to pay by installments for from six months to three years. The company expects to set up 1,000 shops that provide consumer credit in three years.
When asked why finance companies have been trying to expand consumer credit, while domestic banks have given up the game, the general director of a joint-stock bank said that domestic banks do not have enough capital to compete with finance companies in consumer credit services. Meanwhile, the companies accept spending one or two years to cement their position in the domestic market.
VNN
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