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Consumers don’t bite on bank loan bait   2009-03-18 - VietNamNet/Viet Nam News

Consumers have ignored bank enticements to take out personal loans of up to VND1 billion (US$57,188).

Although the banks want to increase the number of consumer loans, they concede that consumer, lending still carries risks, especially unsecured credit.

The number of borrowers has failed to increase in the last month despite the promise of negotiable interest rates and other attractions. The contracting economy and stringent rules seem to explain why the commercial banks have been unable to disperse the billions of dong set aside for personal lending.

Loans on offer

Sai Gon Ha Noi Bank is offering four-year loans of up to VND300 million ($17,100) for individuals to buy or repair houses, buy vehicles or other consumer goods without collateral.

Lien Viet Bank will allow managers and staff of institutions and enterprises to VND500 million ($28,594) for three years without mortgaged assets or employer guarantees.

Asia Commercial Bank is offering secured 10-15-year loans to buy dwellings and up to seven years for building and repairs.

Eximbank has earmarked VND3.7 trillion ($211.4 million) for consumer loans and will lend individual customers with a stable income and collateral up to VND500 million ($28,594).

The Eastern Asia Bank (EAB) has introduced a 24-minute loan that allows customers who are paid via EAB cards to borrow up to VND50 million ($2,859) without security.

Those paid via other bank cards can borrow VND3 million ($171.56) - again without security for 12 months at a monthly interest of 1.07 per cent. Tien Phong Bank charges a yearly 10.5 per cent for home purchases; building and repairs and automobile loans.

The interest for loans secured against variable collateral is a yearly 12.5 per cent and a yearly 9 per cent a year for unsecured loans to customers who can show they have a regular income.

The loan payments are based on primary lending balance and do not reduce during the term of the loan.

Most international banks offer loans at 11 per cent a year with a reduction for early payment.

Failed efforts

Ha Noi-based joint stock-company employee Do Dang To provides an example of why borrowers for the loans have not been materialising.

"We intended to obtain a consumer loan to buy a flat," he said.

"l have worked in Ha Noi for seven years but my family still lives in a rented apartment.

"But my plan collapsed when the bank asked me for a red book - proving land-use rights.

"If we had land, we wouldn't want to borrow money to buy a house.

"We would save the money we need to build a house on the land."

The stringent conditions deterred Quang Minh when he went to borrow VND50 million ($2,859) from several banks to repair his house.

"Most joint-stock banks and several financial companies would lend me was only equal to my income in four months or VND24 million ($1,372) without collateral," he said.

The collateral could include a motorbike or an automobile.

"Oh God! If I had an auto, I would be rich and wouldn't have to borrow a paltry VND50 million ($2,859)," exclaimed Minh.

"My company pays my salary via a State-owned bank, so I sought an unsecured loan," said Tong Thi Diep.

It made no difference.

"They told me I must have a long-term labour contract with my employer but mine is only for a year."

Do Thi Hai said the staff at a bank offering consumer loans of up to VND500 million ($28,594) told her that she must have a monthly income of at least VND25 million ($1,429).

The way interest is calculated for the consumer loans also makes potential borrowers hesitate.

Many banks calculate the interest from the original principal for the entire duration of the loan and do not reduce the amount with payments.

The likelihood of interest rates fluctuating higher also makes for hesitancy.

Although the banks want to increase the number of consumer loans, they concede that consumer, lending still carries risks, especially unsecured credit.

Several bankers argue that banking is the management of risk and conservative business practice is crucial to the success of commercial banks.

If they become as aggressive as investment banks, they could well pay dearly, the bankers say.

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