The State Bank of Viet Nam (SBV) has warned commercial banks to closely monitor and inspect consumer loans as many lenders have loosened their lending conditions, causing concerns about rising bad debt.
Recently, many banks have lowering credit standards for consumer loans to boost lending since their credit growth remained low. Some even offered consumer loans without mortgages or collateral. Such consumer loans are expected to grow further with the end of the year approaching. Previously, banks applied strict requirements to their lending conditions for consumer loans in order to limit risks and avoid bad debts.
According to the SBV, total lending in the first eight months of the year increased only 5.4 per cent, much lower than expected. Total lending of the banking industry is targeted at 12 per cent this year.
Many banks are trying to lend individual borrowers with attractive interest rates of 0 per cent in the first month and 10-11 per cent in the next 11 months.
BIDV, for example, has just introduced a VND2 trillion (US$95.2 million) credit programme with an interest rate of 9.9 per cent yearly in the first three months to boost up lending.
Oceanbank has also introduced a lending programme with interest rate of 5.91 per cent yearly in the first six months for individual borrowers who buy houses or vehicles.
In a similar same move, HDBank has offered a credit package of VND1 trillion ($???) with an interest rate of 0 per cent in the first month and 11.86 per cent in the next 11 months for loans of more than VND500 million. The rate of 12.86 per cent will be applied for loans of VND200-500 million.
ACB has also applied an unsecured credit package in which individual borrowers can be lent a maximum of VND500 million.
It is even easier to access unsecured loans at financial companies, even for sums worth tens of millions of dong. Lending interest rates applied at these companies have also reduced significantly from 17-18 per cent yearly earlier in 2013 to roughly 12-15 per cent currently.
However, as the rebound of the economy has remained volatile, experts have warned that both banks and borrowers should be cautious about the application of these kinds of preferential credit programme.
They said that it was clear that lowering the credit standards may put banks at risk, which also significantly affects the credit quality of the entire banking system.
Bad debts are on the rise and if banks try to achieve credit growth at any cost, bad consequences will shake the entire banking system and the economy, the experts warned.
Economist Nguyen Minh Phong said that it was necessary to offer preferential interest rate packages in the current context when credit growth remained low, however, both banks and individual borrowers must be cautious about any ‘interest rate trap’ to avoid the interest rate volatility and bad debts.
Before signing borrowing contracts, bank customers should read the terms carefully. They should pay attention not only to low interest rates but also other conditions to ensure their rights, Phong suggested.
To ensure consumer-lending operations comply with applicable regulations and protect the rights of borrowers, the central bank has also required branches, transaction offices and the service introduction points of credit institutions to publish detailed interest rate information applicable to each product group and each loan product.
The central bank has required its branches nationwide, in collaboration with the banking supervisory agency, to strictly handle violations detected through inspecting and monitoring the activities of credit institutions in the respective areas.
Industry insiders forecast that credit growth this year could likely reach 12 per cent as targeted. Banking expert Nguyen Tri Hieu said that the lending growth for the entire year should be kept at roughly 10-12 per cent to ensure the credit quality. — VNS