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Cash-rich banks resume lending to individuals   2008-12-04 - TN, SGTT

After bowing out of the consumer credit market several months ago, local banks have restarted lending to individual borrowers but this time they’re doing so more cautiously.



After most commercial banks ceased consumer lending, Prudential Finance Vietnam and SG VietFinance increased their share of the local consumer credit market.

Prudential Finance Vietnam Company, the consumer finance arm of Prudential Plc., said in the past few months it had been receiving 350-400 applications a day. Its branch office at Saigon Trade Center in Ho Chi Minh City’s District 1 alone received about 325 applications a month, more than the average rate of any Prudential office in the Asia Pacific region.

SG VietFinance, a subsidiary of France-based financial firm Societe Generale, is providing consumers with credit to buy laptops at various computer shops and retail chains. For certain product ranges, borrowers don’t even have to pay interest. They are only required to deposit 25 percent of the product value and then pay the rest within nine months.

One bank director, who did not wish to be named, said SG VietFinance and Prudential Finance Vietnam continued to offer personal loans which were not backed by collateral – known as unsecured loans – because they were prepared to accept a higher risk than most banks were.

Moreover, non-bank firms are not subject to the same regulations as banks that limits the ratio of unsecured loans over total loans.

But many commercial banks said they were starting to provide personal loans. Months of cutting back on lending approvals and reductions for business loans has left local banks with a surplus of capital.

Tran Xuan Huy, general director of Ho Chi Minh City-based Sacombank, said banks were eyeing the consumer credit market after many of their business customers, hurt by the global economic downturn, cut back on production and, as a consequence, borrowing.

Huy said Sacombank planned to become a retail bank, with individuals making up 70 percent of its borrowers.

Partly-private ABBank recently announced a promotional campaign to boost consumer lending. Borrowers can apply for home mortgages and car loans as well as unsecured loans.

Dam The Thai, ABBank director for individual customers, said the bank had set aside VND500 billion (US$29.5 million) for personal loans.

Although banks want to attract more individual borrowers, some don’t want to enter the risky territory of unsecured loans.

HSBC Vietnam said it still has no plan to introduce loans other than mortgage-backed loans at an annual interest rate of 16.5 percent. Techcombank, one of the leading banks in providing unsecured loans to individual borrowers last year, now also prefers to stay within a safe zone.

Some other banks have managed the risks by setting higher loan eligibility requirements. ABBank, for example, is now focusing on borrowers who work for foreign companies with an income of at least VND5 million ($295) per month. It has also reduced repayment terms for car loans to 10 years from up to 20 years earlier.

Meanwhile, DongA Bank chose to cooperate with two supermarket chains – Big C and Best Carings – in offering retail installment loans.

Ly Xuan Hai, Asia Commercial Bank general director, said demand for consumer credit was high at the end of the year but prospective borrowers may find interest rates too high, especially if borrowers themselves have been affected by economic difficulties recently.

The interest rate for a VND40 million ($2,360) unsecured loan at Asia Commercial Bank is now 15.24 percent per year. Hai said the bank has a capital of VND2 trillion ($118 million) for personal loans and loans for household businesses.

Dinh The Hien, director of the Institute of Informatics and Applied Economic Research, said one of the measures to help increase gross domestic product was to stimulate spending and that’s why banks needed to boost consumer credit.

Local banks should extend consumer loans to more customers, Hien suggested, noting that in Japan banks provide consumer credit to more than 30 different groups of borrowers at different interest rates.

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