Most commercial banks are unwilling to provide unsecured consumer loans for fear of high risk while the return is not attractive due to the low ceiling set by the central bank, the Saigon Times newspaper reported.
As the lending rate is capped at 12.75 per cent for both secured and unsecured loans corresponding to the prime rate of 8.5 per cent, bankers say consumer lending is not profitable. The commercial lending rate in Vietnam now will by no means exceed 150 per cent of the prime rate as dictated by the central bank.
Mai Tong Ba, director of Saigon Branch of Asia Commercial Bank, said he had had trouble with overdue debts when making unsecured loans to buyers of motorbikes in the past. Therefore, he does not intend to boost this lending channel, or will impose strict conditions on borrowers.
“With the same lending rate of 12.75 per cent, banks prefer giving secured to unsecured loans because of less risk,” he explained, adding unsecured consumer loans are usually given by finance companies, and that ACB has plans to set up such an institution soon.
In Vietnam, however, there is only one common ceiling rate for those different loans, he noted, explaining that in the U.S., an unsecured consumer credit might be subject to a lending rate three times higher than the lending rate for housing.
The current liquidity is not high to spur unsecured loans, Ba remarked, saying, “If banks continue to reduce the borrowing rate, their liquidity will be low, especially in the lead up to Tet holiday as people have high demand for cash.”
Currently, finance firms such as Prudential Finance Limited Company in Vietnam are boosting unsecured consumer loans with quick and easy procedures. According to the newswire VnExpress, this company receives about 300 to 400 applications for loans a day.
However, the actual interest rate is higher than the ceiling of 12.75 per cent, as the interest is calculated on the basis of the initial loan, not on the reduced principal during the loan term. Many customers do not pay close attention to such an interest calculation method in the lending contract, and therefore suffer from high rates, according to the online newspaper. (Saigon Times Daily)
Vietnamese
