Consumer lending development will push back 'black credit'

Developing a healthy consumer lending market and ensuring that people have full information about their rights and obligations when borrowing capital will help prevent the situation of "black credit".

In fact, recently there have been many incidents that have happened to people, especially the poor or the ignorant, due to illegal credit. Due to loopholes in regulations and weak sanctions, illegal credit is still rampant in some localities.

Transaction at Vietcombank Vinh. Photo: Thu Huyen.

According to the General Department of Police (Ministry of Public Security), from 2010 to 2014, there were hundreds of major debt defaults with losses of up to thousands of billions of VND. Related to these debt defaults were 41 murders, 318 intentional injuries, and 588 robberies. Criminals with criminal records, violent thugs gathered into gangs, illegally detained people to collect debts, hired debt collectors, and hunted down debtors...

To prevent the above situation, in addition to perfecting the legal framework and increasing sanctions for violations, an effective solution is to strongly develop consumer credit in a healthy manner.

Mr. Bui Quoc Dung, Director of the Monetary Policy Department (State Bank of Vietnam - SBV) assessed that consumer lending has many effects, including contributing to narrowing down informal lending activities, helping people with consumer lending needs not have to resort to high-interest loans, "black credit" with too high interest rates, and avoiding risks.

Mr. Dung cited the latest statistics from the Monetary Policy Department, total outstanding consumer loans by September 2015 increased by 31.49% compared to the end of 2014, accounting for 8.02% of total outstanding credit in the entire system.

Of which, outstanding loans for living needs increased by 32.41% compared to the end of 2014 (accounting for 96.27% of total outstanding consumer loans), loans through the issuance and use of credit cards increased by 11.41% compared to the end of 2014 (accounting for 3.73%). This shows that consumer credit is growing quite strongly in 2015.

Outstanding loans for most needs increased. Of which, loans for buying, repairing houses and buying houses for living with the source of repayment from salary increased at a fairly high rate and accounted for the largest proportion. Outstanding loans for overdrafts through personal payment accounts decreased.

Increase competition for transparency, lower interest rates

However, some opinions say that consumer loan interest rates are still high, creating certain burdens for borrowers. Lawyer Truong Thanh Duc (BASICO Law Firm) said that lending interest rates are quite high compared to the world. Moreover, consumer loans are often small, costs are increased, so lending interest rates are naturally difficult to be low. The interest rate is based on the agreement between the lender and the borrower. If lending interest rates are too high, credit institutions will have difficulty attracting customers.

The requirement for banks is that consumer loans must be transparent, contracts must be clear, clearly state the method of calculating interest, and not cause misunderstanding for borrowers. In fact, if credit institutions lend at higher interest rates, the risk of not being able to collect debts will be greater.

Furthermore, legal regulations need to be stricter and more effective to protect the rights of creditors, to be able to quickly overcome risks, and handle secured assets to recover debts.

Regarding this issue, the representative of the Monetary Policy Department said that consumer loans are mainly small loans (only a few hundred to a few million VND), with very short loan terms (from a few days to a few weeks), so paying interest of a few tens of thousands of VND/day to a few hundred thousand VND/week can also be reflected in a very high listed interest rate (several tens of percent/year) compared to the normal lending interest rate.

Therefore, according to reports from credit institutions, by September 2015, the interest rate for loans for living expenses applied by financial companies to customers was generally at 20-35%/year, higher than the normal lending rate. However, outstanding consumer loans only accounted for a small proportion (about 8.02%/total outstanding credit of the entire system).

Faced with the situation where some consumer finance companies lend at high interest rates, the State Bank has worked with and directed these companies to review their loans, save costs, commit to having risk management solutions to ensure credit safety, reduce lending interest rates to a reasonable level, and support customers in resolving difficulties in borrowing costs.

As a rule, when the economy develops and consumption increases, borrowing to serve people's consumption also increases, in line with the trend of shifting from a growth model based on government spending and investment to one based on private consumption.

Therefore, according to Mr. Bui Quoc Dung, consumer credit in Vietnam will develop further in the coming time. With the increasing number of credit institutions participating in consumer lending, banks will have to compete fiercely to provide credit products with lower interest rates, more incentives, and a closed connection to the production, business and consumption cycle.

In the coming time, the management of consumer lending activities must ensure harmony between the goals of promoting the healthy development of this market, creating conditions for credit institutions to provide lending products suitable to customers' needs, helping consumers have full information about their rights and obligations when borrowing.

In addition, it is necessary to build a legal framework regulating consumer lending activities, ensuring harmony between consumer protection functions and regulating credit institutions according to international practices and in accordance with Vietnamese reality.

When the legal corridor for financial companies is completed, there will be more units participating in providing this service. Healthy competition between companies through increasing benefits to attract customers will indirectly make consumer loan interest rates "more affordable", helping many people easily access high-quality financial services.

According to Chinhphu.vn