Finance firms oppose cash lending limit, late payment penalties

26-Nov-2016 Intellasia | The Saigon Times | 6:00 AM Print This Post

Finance companies have objected to certain articles of the central bank’s draft circular setting limits on cash lending and interest rate penalties for overdue loans.

At a seminar discussing the draft circular in HCM City on November 23, Nguyen Hoang Minh, deputy director of the central bank’s HCM City branch, said that regulations on lending activities by credit institutions were released in 2000 and have become outdated to some extent. Therefore, the central bank has to make adjustments and provide new guidelines.

The old regulations fail to tell differences among lenders such as banks, credit funds and finance companies. Meanwhile, banks and finance firms target different customers.

Finance firms serve middle or low-income earners without mortgaged assets who are usually rejected by commercial banks. Besides, finance companies mainly provide small loans with short tenors but high risks.

Therefore, given the disparity, actual operations of finance companies and management of the central bank, it is necessary to issue specific regulations on consumer lending to help firms better operations and protect consumer interests, Minh explained.

Bui Quang Tin from the HCM City Banking University’s business administration faculty said the central bank has launched the second draft circular on consumer lending with more updates.

Once completed and issued, the regulations would help secure sustainable growth for the consumer lending market and finance companies. Citizens will be able to tap official capital sources instead of approaching loan sharks.

The circular also legalise the relationship between lenders and borrowers. Besides, administering agencies will have a legal framework to deal with disputes between both sides, Tin said.

However, most finance companies disagreed with those articles regulating limits on cash disbursements at VND10 million (US$443) and penalties on late payers.

The regulation aims at reducing cash use as per the government’s orientation. However, VND10 million is too small, said Pham Hai Van from FE Credit Company.

In fact, finance companies have specific products with direct disbursement and flexible products for customers in remote areas that cannot access modern payment channels. The latter helps customers get cash and buy goods anywhere with more affordable prices.

Currently, motorcycle loans are a popular product of finance firms with a bike costing from VND17 million or more. Therefore, the VND10 million limit does not reflect the reality, she said.

Vuong Thuy Tien, a board member of Home Credit Vietnam, said consumer finance providers usually do not give cash to customers but transferring money to retailers. The firm now offers loans from VND30-50 million each, higher than the limit set in the draft circular.

Besides, the draft regulates that interest rates on overdue debts will not exceed 150 percent of the interest rate for consumer lending that has been agreed in the lending contracts. This rule will force the company to restructure products as it is offering certain loan packages at a zero rate, Tien said.


Category: Finance, Vietnam

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