The State Bank of Vietnam (SBV) is completing the draft circular stipulating safety limits and ratios in the operation of non-bank credit institutions. Non-bank credit institutions in Vietnam consist mainly of financial companies, financial leasing companies and a number of other non-bank credit institutions.
In Vietnam, there are currently 16 active financial companies, including 12 consumer credit finance companies.
According to the explanation of the draft circular, SBV aims to being closer to international standards and practices on the basis of maintaining separate and consolidated capital adequacy ratios; enhance the risk tolerance of non-bank credit institutions in the face of market shocks. And based on the new regulations, the purpose of the regulator when implementing this circular is to require non-bank credit institutions to restructure their investment portfolio according to the level of risk for each type of assets on the basis of using the capital.
More specifically, the above draft provides direction for adjusting the risk factors for potential risk areas.
The new feature of the draft circular compared to the current regulation (being implemented under Circular 36) is the capital adequacy ratio determined by own capital compared to the total of risky assets and the inheritance of the content of the Circular. No. 36, at the same time, the risk coefficients were amended to increase in order to ensure control and restriction of high-risk areas.
Accordingly, the credit group with the risk factor of 50 percent is applied to all accounts receivable secured by houses (including future houses), land use rights, construction process associated with the borrower’s land use right and meeting one of the prescribed conditions.
The above level of risk coefficient also applies to loans for business activities under SBV regulations on lending activities of credit institutions and foreign bank branches; personal loans for customers to buy social houses, buy houses under the government’s support programmes and projects. Personal loans for customers who buy houses with the loan agreement and loan amount under the credit contract of less than 1.5 billion dong also have a risk factor of 50%. Each customer applies this risk factor to only one loan.
However, according to the draft, the Credit group has a risk coefficient of 120 percent (effective from January 1, 2021 to the end of December 31, 2021) and 150 percent (takes effect from January 1, 2022), applicable to: Accounts receivable from individuals serving the essential needs for which the total amount of loan agreements/loan levels in their credit contracts is from 4 billion dong or more (after deducting customer’s claim applying a risk factor of 50%).
Thus, the aforementioned upward trend is similar to the mechanism that SBV has recently implemented in credit institutions, which are commercial banks, applying a higher level for valuable loans in personal lending for essential needs.
