Unsecured loans - difficult on both sides

(Baonghean) - Recently, the State Bank of Vietnam issued Official Letter No. 5342/NHNN/TTGSNH requesting credit institutions (CIs) to improve their credit ratings for unsecured loans. Loosening credit for unsecured loans is a move that benefits both businesses and banks. However, it seems that this policy is not easy to implement.

Less "heavy" mortgage assets

According to Official Dispatch 5342, the State Bank of Vietnam proposed to develop a process for collecting and exploiting information on credit rating and customer activities from officially operating organizations (Vietnam National Credit Information Center, corporate credit rating organizations, etc.); combining with the internal credit rating system of credit institutions and foreign bank branches to improve the efficiency of appraisal and assessment of the creditworthiness of borrowers in order to increase the ability to lend without collateral, simplify lending procedures, restructure loans with high interest rates in the past, and ensure the safe operation of credit institutions and foreign bank branches in accordance with the law.

Mr. Tran Thanh Hai - Director of Hai Chau Shipbuilding Company shared: “To maintain and develop the shipbuilding industry, businesses need large capital and have regular relationships with banks. In the early stages, we still had to mortgage assets to borrow. However, later on, due to fair repayment, clear production and business plans, the business has created trust with the bank, so we are still allowed to borrow by the bank in the form of credit. Due to difficulties in assets and land, most businesses always want to borrow on credit, but from the bank's side, in my opinion, to get a credit loan, the lending - borrowing relationship must go through a certain period of time; when the lender has a very high level of trust with the borrower, then they can decide to lend on credit".

Unsecured loans are being strongly deployed by banks, especially for customers with average incomes. Customers only need to prove to the bank information about their source of income, place of work, place of residence, etc. to assess their ability to repay the debt and can borrow for consumption at quite attractive interest rates. For example, customers who are salaried employees who need to borrow capital using their salary without collateral will be lent by Vietnam Prosperity Bank (VPBank) for up to 12 months of salary; loan term from 6 - 36 months; repayment method: monthly interest (calculated on the initial loan balance), principal paid monthly or at the end of the term, etc.

According to data from the State Bank of Nghe An province, by the end of September, the mobilized capital in the province was estimated at VND63,500 billion, an increase of 13.1% compared to the beginning of the year. The total outstanding debt of credit institutions in the area was estimated at VND105,000 billion, an increase of 9.5% compared to the beginning of the year. The total bad debt of banks in the area was about VND1,606 billion, accounting for 1.5% of the total outstanding debt. The credit scale is increasing with the support of reduced interest rates on deposits and loans, and the liquidity of credit institutions in terms of abundant deposits. Although the ceiling interest rate on domestic and foreign currency deposits has continuously decreased, savings deposits as well as deposits of economic organizations have increased. Therefore, the policy of increasing unsecured loans and reducing dependence on assets is a good signal to boost credit growth.

Banks are afraid

However, while the target is civil servants, the bank is strongly implementing, the target is businesses facing many difficulties due to difficulty in managing cash flow, lack of financial transparency, and difficulties in production and business. Discussing this issue, Ms. Nguyen Thi Thu Thu - Director of the State Bank of Vietnam said that this is not a new issue, because banks have long been lending on credit. Previously, the State Bank of Vietnam also issued Circular 02/2013 requiring banks to build a credit rating system for businesses. However, currently, the number of audited financial statements of businesses is very small, and the finances of small and medium-sized enterprises lack transparency, so it is very difficult for banks to lend on credit. “If we pursue credit growth in difficult business conditions for enterprises, while real estate and securities are loosened, it will be an opportunity for bad debt to increase rapidly. Therefore, it is important to have solutions to manage capital and monitor business cash flow.” - The Director of the State Bank said.

Sharing this view, Mr. Phan Huu Phung - Director of Saigon Commercial Joint Stock Bank (SCB) Branch in Vinh City said that in theory and in practice, asset mortgage is only secondary, the most important thing is still the effectiveness of the business project, the ability to recover capital. In reality, many businesses lend money through the assessment of mortgaged assets, but when the business goes bankrupt, it is not easy to resolve the assets. Therefore, in addition to mortgaged assets, credit institutions especially value the effective and reputable business plan of the business. However, the conditions for unsecured loans are mainly state-owned enterprises and large enterprises, while small and medium-sized enterprises with unhealthy finances and lack of transparency find it difficult to borrow in this form because of too many risk factors. We also lend unsecured loans based on business credit ratings, but not much. Currently, SCB Vinh branch mobilized VND2,100 billion, up 15% compared to the beginning of the year, but outstanding loans only reached VND100 billion, up 8% compared to the beginning of the year; mainly short-term loans (accounting for about 70% of total outstanding loans).

Customers transact at Ben Thuy Industrial and Commercial Joint Stock Bank (Vinh City).

Currently, each bank has its own way of ranking businesses, which is built by the bank itself. At Ben Thuy Joint Stock Commercial Bank for Industry and Trade, Ms. Cao Thi Thu Trang - Deputy Head of the General Department, said: Currently, our mobilization has reached 90% of the annual plan, but lending is really difficult. For a long time, the bank has implemented unsecured loans; and credit rating is the basis for banks to lend, but the rate of businesses ensuring "health" is not much. Currently, at Vietin Bank Ben Thuy, only a few businesses are eligible for unsecured loans such as the Northern Construction and Industrial Development Joint Stock Company, Trung Do Joint Stock Company, Hoang Thi Loan Textile Joint Stock Company... As of August 31, while mobilization reached VND 2,230 billion, the outstanding debt of Ben Thuy Joint Stock Commercial Bank for Industry and Trade reached VND 1,700 billion, an insignificant increase compared to the beginning of the year. There are new customers but it cannot compensate for the decline. Currently, the bank is implementing programs to quickly access capital with preferential loans at an interest rate of 8%/year, supporting the success of businesses depending on the group with preferential interest rates of 7.5%/year. The bank also has to assign targets to credit officers, increase marketing, review product packages suitable for customers...

Unsecured lending is a message for banks to reduce their dependence on collateral, shifting to unsecured lending in accordance with credit practices. However, a bank credit officer shared: We still know that the policy of increasing unsecured lending without relying too much on collateral as it is now is very correct, but credit officers are very hesitant when involved in the issue of responsibility, sometimes getting into trouble with the law. The State Bank's policy of loosening credit to improve the efficiency of appraisal and assessment of the creditworthiness of borrowers in order to increase the ability to lend without collateral during the loan appraisal process, but when an incident occurs, reviewing the file, credit officers are the first to take responsibility.

Regarding the responsibility of credit officers, Mr. Phan Huu Phung added: The law is criminalizing many civil issues, including the field of banking credit. According to the law of competition, the law of the market, bankruptcy of enterprises is inevitable and normal. Every year, hundreds of enterprises go bankrupt in the province and hundreds of new enterprises are established. The difficulty for banks is that mortgage loans are no different from pawnshops, riskier than unsecured loans because handling assets is not easy. But unsecured loans, if the loan is related to a bankrupt enterprise, will create bad debt, and involve assigning responsibility. Although many banks have implemented unsecured loans, they are still an unsolvable barrier. I think that local leaders are the ones who understand the situation of enterprises. Therefore, if the government participates, it will also be an important information channel for banks to confidently open their wallets to invest capital.

Banks have excess capital and must increase lending; businesses lack capital for business but have difficulty accessing it. The story of the mismatch between banks and businesses still exists. Although we know that unsecured loans are a viable solution in the current gloomy lending conditions, it is not easy to implement because of the risks that may come to banks. Therefore, to unblock capital flows and create a sustainable credit market, it is still necessary to have the participation and sharing of banks, businesses and local authorities.

Thu Huyen