E-wallets transfigured into channels to mobilise or lend capital, credit cards used to withdraw money, thanks to which financial companies raced to lend cash. Such variables were the reasons why the State Bank of Vietnam (SBV) issuing a series of new regulations on card management, payment intermediaries, and consumer lending.
Lending race regardless of its purpose
Talking to reporters of the Investment Review, deputy general manager in charge of credit of a joint-stock commercial bank said that the credit growth of financial companies over the past time was explosive. The finance company was rapid in customer service, but the loan balance of this group had exploded too fast with easy lending. The purpose of consumer lending was to serve consumers, but at present, many lending finance companies did not verify the purpose of use, which brought about many potential risks. Perhaps, this was the reason why SBV had just issued a new regulation to gradually restrain cash loans of financial companies, the manager shared.
Currently, in terms of debit balance, the largest cash loan finance company was FE Credit (76 percent of the total balance of this company was cash loans). However, in proportion, in some newly established companies, cash loans amounted to approximately 90 percent of the total credit balance. Many consumer rookies in consumer finance said that selling points such as motorbikes, electronics, supermarkets, etc, were signed by big companies quickly entering the market. Thus, there was no way but to lend cash for new finance companies.
In fact, not only direct cash disbursement, in recent years, consumer finance companies were also racing to issue credit cards to boost lending through cards.
Lending significant cash and mechanism was quite open, making non-performing loans of consumer finance companies quite high, fluctuating at five percent to eight percent per year, of which 90 percent likely lost capital. Many financial companies adopted terrorist debt collection methods, causing instability and social unsafety.
Not only consumer finance companies but also the banks that provided loans through cards also had many risks, which was the inability to manage customers and the money withdrawal of card-accepting units.
Even, according to the Investment Review’s reporter, many banks were offering customers cash withdrawals via cards in 45 days with free interest, then converted into short-term loan installments or transferred money from credit card to personal account for consumption. Of course, customers had to pay monthly interest at the credit card interest rate.
For e-wallets, recently, there had appeared some unlicensed e-wallets, but they frantically mobilised capital to pay high interest rates (such as Payasean). Besides, the money transfer activity of electronic wallets also revealed many loopholes.
Balance risk management and financial universalisation
The loopholes related to cash lending activities, e-wallets, card issuance and usage activities were the reasons for SBV to issue a series of new regulations in recent months.
Specifically, in Circular 18/2019/TT-NHNN for lending activities of financial companies just issued, SBV had asked financial companies to reduce the ratio of cash loans to total credit balance to 70 percent from the beginning of 2021 and to 30 percent from the beginning of 2024. These companies were also not allowed to lend to customers who were in bad debt and could not collect debt by threatening customers.
SBV explained that the current situation of consumer lending by financial companies when disbursing directly to borrowers was often high risk and difficult to control the purpose of loan usage. Therefore, clearly separating disbursement of consumer lending activities through beneficiaries (usually service providers, goods, installment sales, etc.) and direct consumer loans disbursing to customers would create a basis to control this activity.
With payment intermediaries, especially e-wallets, in the newly issued Circular 23/2019/TT-NHNN (effective from January 7, 2020), SBV strictly forbade the use of e-wallets to carry out showing transactions for money laundering, terrorist financing and fraud. SBV also prohibited hiring, leasing, borrowing, lending e-wallets, or buying and selling e-wallet information. Also, electronic wallet providers were not allowed to mobilise or lend via wallets.
Regarding card operation management, SBV was drafting a draft circular to amend and supplement several articles in Circular 19/2016/TT-NHNN (regulations on bank card operations) in the direction of tightening the process of ATM and credit cards, including cards issued by banks and financial companies. Accordingly, credit cards could only be used to pay for goods and services, cash deposit and withdrawal as agreed upon between the cardholder and the card issuer. Credit cardholders would not be allowed to transfer to their payment accounts and prepaid cards. Besides, SBV also prohibited individuals and organisations from conducting, facilitating others to conduct fraudulent or forged transactions and short payment transactions.
The tightening of management to prevent arising transfigure over the years was necessary. However, with lending activities of consumer finance companies, many banking experts also said that regulatory agencies had to balance risk management and comprehensive financial universalisation and fight against shadow banking.
In fact, most people were still finding it difficult to access bank credit, so borrowing money through a financial company or a card was one way for people to escape shadow banking.
