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High consumer credit costs slow sales   2009-02-17 - Viet Nam News

Interest rates as high as 18 per cent have people thinking twice about seeking consumer loans.

Many commercial banks announced expansive plans to promote the loans immediately after the central bank had allowed them to set their own interest rates for such borrowing.

State Bank of Viet Nam's Banking Strategy Director Le Xuan Nghia said consumer lending in Viet Nam had enormous potential and the economic slowdown was an appropriate time to boost it.

The banks agreed.

Lien Viet Bank announced that it was prepared to lend individuals without assets as collateral or guarantees from their employers up to VND500 million (US$28,735) for three years.

SeABank has credit of up to VND300-500 million ($17,241- 28,735) for individuals to buy or repair dwellings; buy autos and other consumer purposes. Habubank has VND2 trillion ($117.94 million) to lend individual customers.

Asia Commercial Bank (ACB) is offering loans totalling VND2 trillion ($114.94 million) for the purchase of houses to 10-15 years and up to seven years for building and repairs.

Eximbank has announced it will earmark VND3.7 trillion ($211.4 million) for consumer loans and will lend up to VND500 million ($28,735) to individual customers with a stable income and collateral.

Orient Commercial Bank has earmarked VND500 billion ($28.73 million) for loans to buy houses and cars. It will provide loans of up to 80 per cent of the value of the cost for a maximum of 15 years.

Techcombank, Sacombank, and DongA Bank have also announced plans to quicken personal lending.

No takers

But how many people will borrow at 12-18 per cent a year?

"Not me," said Thanh Trang, an employee of a private company in Ha Noi. "I will not borrow for consumer purposes.

"With monthly income of VND6 million ($344), I can't afford such high interest rates. If I borrowed VND300 million ($17,241) to buy a car, it would take me 10 years to repay the debt. It's horrible!"

Hai Phong secondary school principal Do Hai, who went to Sacombank for a VND200 million ($11,494) consumer loan to buy a house, admitted she was finally too prudent to accept the money.

"I have idle capital and wanted to borrow a little to buy a house," she explained. "They offered me a consumer loan at only 9.5 per cent a year. It sounded great first! But when they said they would apply an add-on to the interest rate, I had to re-consider."

The add-on interest rate is calculated yearly against the entire principle and can take the amount owned to much higher than the nominal rate.

Risk management

Bankers concede that consumer lending still carries many risks, especially unsecured credit.

A State Bank of Viet Nam representative, who asked for anonymity, said consumer loans remained limited because banks and customers were still exploring the market. Banks are reported to be preparing risk provisions and interest rate-policies.

Sacombank argues that interest-rate policy should be changed as market changes with interest rates for consumer loans dependent on the 'risk taste' of each bank.

ACB bank General Director Ly Xuan Hai said there were still difficulties with the domestic market and the interest for consumer loans was higher than the interest cap set for enterprises. The result was that individuals seemed not to want to consumer loans, he said.

Lien Viet Bank General Director Nguyen Duc Huong said: "Banks could still boost consumer loans if they applied proper and strict regulations despite the risks of unsecured lending."

But many bankers forecast that consumer lending will not be as high as expected.

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