According to transportation experts, the increasing transportation demand will make cars become popular means of people. In addition to the purpose of ensuring family safety in every trip, people also need cars to serve the small service business. On the other hand, businesses also need to invest in trucks, bus, specialised vehicles, etc. to transport, expand and promote activities.
Vietnam Automobile Manufacturers Association (VAMA) said that in 2018, the total number of individual cars sold to the whole market reached nearly 270,000 units, a strong increase compared to 2017. In Q1-2019, consumption of the automobile industry reached 73,297 vehicles, up 25 percent compared to the same period in 2018.
According to datas from general Statistical Office of Vietnam, Vietnam’s per capita disposable income improved rapidly in the last five years and was constantly increasing. Therefore, car ownership demand was expected to remain high in 2019 and the coming years. However, spending a large amount of money buying a car was not a simple thing for many people. This was an opportunity for banks to boost credit capital in this fertile segment.
Individual customers will enjoy very competitive lending interest rate at Vietnam International Commercial Joint Stock Bank (VIB), such as car loan with interest rate from 7.4 percent per year; home loan from 7.5 percent per year. VIB leader said that the bank decided on the lending interest rate based on reasonable expenses, including the cost of mobilising medium and long-term capital, but always ensured reasonable competitiveness in terms of equal to lending interest rate for customers.
Nam A Commercial Joint Stock Bank (Nam A Bank) cooperated with Kim Thanh Automobile Joint Stock Company to carry out preferential policies for customers who buy Honda cars with a loan limit of up to 100 percent of capital demand; Attractive interest rate is only 9.5 percent per year fixed in the first 12 months; months; Flexible loan term up to 84 months; Collateral is a purchase vehicle or other property of the customer. This policy also applies to firms.
Car loan business is considered to be potential and fierce market share among banks. However, after a period of large outstanding loans, some banks started complaining when handling overdue debts.
As a rule, installment purchase cars are required to mortgage original certificates at the bank, while the management of the car is delivered to the customer. Therefore, in case customers bring cars to mortgage, the bank will not know.
According to a bank’s representative, nearly 50 percent of the bank’s bad debt in the automotive sector was that assets were guaranteed to be mortgaged or pledged in different places, most of which were at pawn shops. In this case, the handling of assets must be coordinated by many parties. The best way was that the parties can negotiate with each other. Otherwise, the bank and the pawn party must work together to find a solution. However, in many cases, the owner of the pawn shop refused to meet the bank, the customers were hiding the problem, making the loan handling difficult.
Meanwhile, the bank could not put more money to take the car out from the pawn shop, so the best solution was to settle the loan first and the pawnbroker could liquidate the property with full legal papers. However, in many cases, mortgage value far exceeded the value of collateral. Banks often lent up to 80-100 percent of the value of the car, while pawn shops often gave a mortgage of 20-30 percent of the value. This made the value of the two credits higher than the value of guaranteed assets, not to mention the case of devaluation due to the use of many.
According to the report of Viet Capital Securities Joint Stock Company (VCSC), automobile loans currently held by five banks with the largest market share including Vietnam International Commercial Joint Stock Bank (VIB), Shinhan Bank Vietnam Ltd (Shinhan Bank), Vietnam Technological and Commercial Joint-Stock Bank (Techcombank), Vietnam Prosperity Joint-Stock Commercial Bank (VPBank) and Tien Phong Commercial Joint Stock Bank (TPBank). However, high competitive pressure forced banks to lower interest rate, increased disbursement rate on car value, reduced appraisal time, and led to many consequences later.
A bank’s representative said that the process of handling collateral was simpler than real estate, so the implementation process incurred many shortcomings when bad debts appeared. This bank used to take nearly two months to find out the mortgage vehicle. But after finding assets, the liquidation was not easy. Customers borrowed 85 percent of the value of the car, but the mortgage had been used many times, the value of the car was only 50-60 percent of the original.
