The State Bank of Vietnam (SBV) is seeking comments on the draft amending Circular 43/2016/TT-NHNN regulating the consumer lending activities at finance companies. The Circular may tighten the regulations for consumer lending at finance companies, which are considered the “goose that lays golden eggs” for banks.
Along with reducing the credit growth limit for the entire consumer finance sector this year, some finance companies such as FE Credit (a subsidiary of Vietnam Prosperity Commercial Joint Stock Bank (VPBank)), HD Saison (a subsidiary of HCM City Development Commercial Joint Stock Bank (HDBank)), Home Credit, and Prudential Finance Company are expected to be significantly affected.
Not only these companies, if this draft is passed, the consumer lending sector will experience a considerable deceleration.
The draft divides finance companies’ consumer lending into two categories including indirect disbursement and direct disbursement lending.
The indirect disbursement lending includes traditional financial products of finance companies through financing consumer goods such as motorbikes, phones, household appliances, etc. Meanwhile, direct disbursement lending is a form of cash lending for individual in need of small loans and having difficulty in accessing bank services.
For the indirect loans, finance companies disburse the loans directly to the sellers instead of disbursing directly to borrowers. For the direct loans, borrowers do not need to purchase goods and are disbursed directly.
However, cash loans can only be offered to customers with good credit history and no bad debts according to information from the Credit Information centre (under the SBV).
Notably, the draft proposes to apply the maximum proportion of cash loans in the outstanding loans of finance companies at 30%. The draft also stipulates that the notice of debt reminder is prohibited from 9pm to 7am.
In addition, a finance company or debt collection agency is not allowed to use improper measures such as threatening customers or requiring an organisation or individual that has no obligation to pay the debt.
Among businesses operating in consumer lending, FE Credit’s portfolio is fairly specific, which focuses on cash loans (direct lending) to individual customers.
Finance companies often do not release information about the proportion of cash loans. However, it is obvious that the lending terms of cash loans are medium, while the loans financing consumer goods purchase are often short term.
According to research of HCM City Securities Company (HSC), among three finance companies with the largest market share in the market, FE Credit has the highest proportion of cash loans in total outstanding loans with about 80%. This level is too high compared to the maximum limited of 30 percent regulated in the draft supplementing Circular 43.
Meanwhile, the proportion of cash loans in total outstanding loans at HD Saison and Home Credit is much lower with respectively 40 percent and 50 percent but still fairly high compared to the regulated limit in the draft circular.
In this context, finance companies are waiting for the SBV to provide specific guidance on how and when companies having higher proportion of cash loans than required limit have to reduce this rate to 30%.
It is known that FE Credit often offers about 20 percent of the outstanding cash loans to new customers, a fairly risky ratio while its rivals are more cautious in lending cash to new customers.
According to report of VPBank, FE Credit contributed up to 45 percent of the bank’s after-tax profit in 2018 (52 percent in 2017). Therefore, if FE Credit has to reduce the cash loan proportion, not only the company’s business results but also the consolidated profit of VPBank will decrease significantly.
Talking to reporter of Infonet, VPBank’s representative said that the bank has not yet made any comment regarding this issue as this regulation is currently in the drafting stage.
