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Commercial banks rushing to set up finance companies
A lot of commercial banks are planning to set up finance companies in 2009 in order to professionalise their consumer credit products in the context of increasing demand in the market.
Consumer credit is believed will develop strongly in the near future and bring big income to banks.
East Asia Bank (EAB) has decided to set up a related finance company. The plan on the company’s establishment was approved at the 2008 shareholders’ meeting. However, the bank was not in a hurry to set up the finance company last year, while only a personal finance centre was established, a preparatory step for the establishment of the finance company later.
The personal finance centre of the bank is ready to become operational as a finance company. The company will have the chartered capital of VND500bil and have the functions of issuing credit cards, providing consumer credit and providing finance services to clients.
Under the plan approved at the shareholders’ meeting, Asia Commercial Bank (ACB) will use a part of the increased chartered capital in 2009 (from VND6,356bil to VND7,814bil) to set up the ACB one-member limited Finance Company, which will have the initial capital of VND300bil.
ACB said that the model of finance companies existing together at the same time with the banking system proves to be a familiar thing in economies with developed finance markets. The main clients of finance companies are individuals with low and medium incomes. The main products to be provided by finance companies will be small credit to fund consumption, and small-scale business at household level. In Vietnam, small consumer credit products have appeared and have been strongly developing.
To date, the State Bank of Vietnam has licensed nine companies which are now in operation, and is considering accepting another 10 applications.
The shareholders’ meeting of Sacombank has also approved the bank’s board of directors’ plan to establish a finance company which is expected to make its debut in the period from now to 2010.
Meanwhile, Sacombank’s General Director Tran Xuan Huy said that the bank is staking preparation steps to establish a service centre to better serve individual clients.
Though banks have been successfully pushing up consumer credit, they still believe that they need to establish finance companies to develop personal consumer credit products. Finance companies will help them avoid risks in operation as well as allow them to better manage loan risks.
Under the draft document on amending some provisions of the Law on Credit Institutions being compiled by the State Bank of Vietnam, commercial banks may not be allowed to provide loans to fund securities investments. Therefore, banks think that if they set up finance companies, they will be able to develop personal credit products as the companies operate independently.
ACB sees a lot of opportunities in consumer credit development. “The demand for consumer loans at the immediate time may be modest, but it will increase sharply in the future, when living standards improve,” said Nguyen Duc Kien, Deputy Chairman of the Foundation Council, and Chairman of the Investment Council under ACB.
Sacombank also said that its purpose in setting up a finance company in 2009-2010 is to professionalise consumer loaning to become a leading retail bank in Vietnam.
VietNamNet, DTCK
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