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Freed-up banks race to snare consumer loan market
After Vietnam’s central bank removed the interest rate cap on consumer loans, commercial banks are trying to capture as much of the market as possible with unsecured loans often at negotiated rates of interest.
The banks restricted their consumer lending after the State Bank of Vietnam slashed the key rate from 8.5 percent to 7 percent effective February 1, Asia Commercial Bank (ACB) General Director Ly Xuan Hai told the investment newspaper Dau Tu Chung Khoan.
Until the rate cap was lifted on consumer loans, a central bank’s move to stimulate the economy, commercial banks were allowed to charge interest on dong loans up to 50 percent above the benchmark rate, which is now 10.5 percent.
With the ceiling rate gone, the banks are eager to lend to individuals as well as their more traditional clients, Hai said.
The ACB, the biggest of the listed lenders, is making it easier for individuals to take out unsecured personal loans, Deputy General Director Do Minh Toan told Lao Dong newspaper.
Unsecured loans of up to VND250 million (US$14,300) are available from the ACB at 15.5 percent interest, the highest level of any ACB loan, according to Bui Tan Tai, another ACB deputy general director.
For a consumer loan from the ACB, the borrower must have a monthly income of VND7 million or more if a city resident, and VND5 million at least if from outside the city.
Sometime soon, the ACB plans to lower the minimum monthly incomes to VND5 million and VND3 million respectively.
Toan anticipates that consumer loans will account for 15 to 20 percent of the ACB’s lending this year.
Sacombank is also fighting and kicking. “Banks and their clients will benefit a lot from the central bank’s move [allowing negotiable rates],” General Director Tran Xuan Huy told Thanh Nien Daily.
He added that his bank’s liquidity remained “strong” and that it was under no pressure to boost its consumer lending recklessly.
Liquidity in the banking system rose 1.57 percent in January from a month earlier, the central bank says on its website.
Total deposits in the banking system rose 0.18 percent in January from the previous month as dong deposits fell by 0.47 percent and deposits in foreign currencies rose 2.3 percent.
Outdoing the ACB, Lien Viet Joint Stock Bank, which started up only 10 months ago, is offering unsecured consumer loans of up to VND500 million.
“Unsecured loans can be very risky. But with tight rules, they are a very profitable line for banks and other lenders,” said Lien Viet Bank General Director Nguyen Duc Huong.
On a smaller scale, DongA Joint Stock Bank is planning to offer small loans of VND1-3 million to students and market vendors, who until now have not been eligible for a personal loan from any bank.
In addition, HCMC-based DongA now allows overdrafts through ATM cards, and charges no interest for the first 45 days.
As for the state-owned banks, an official from one of these told Thanh Nien Daily, on condition that he wasn’t named, that they only gave unsecured loans to big clients, and the conditions were harsh.
Because of the increased competition among the commercial banks, it’s no surprise that analysts are predicting a gradual drop in the interest rates for unsecured loans.
“What’s more, if the National Assembly decides in May to waive the across-the-board personal income tax and stick with the current income tax rules, consumer lending will boom,” another HCMC banker told Lao Dong.
VietNamNet/TN
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