Adjust expenditure loan interest

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It is suggested not to control the expenditure loan interest by administrative policies

Self-agreement

According to the State Bank of Vietnam (SBV), during the past time, the activity of expenditure loan in Vietnam has grown quite drastically with the mean growth rate of 20% per year, but the outstanding rate of expenditure loans has occupied about 8% of total credit outstanding of the whole bank system, it is shown that this activity has much development potential.

That some financial companies have applied high loan interest rates has caused frustration to people. According to the experts, this status is due to the expenditure loans in financial companies normally target to customers who have a low and unstable income with limited knowledge of finance and demand of small loan, so the level of risk is high. Accordingly, these companies have to apply such a high loan interest rate to compensate for the expenses. Moreover, the high interest rate may be caused by intrusion of “bad credit”

Recently, it is rumored that from January 1st, 2017, Article 468 of the Civil Procedure Code regulating the ceiling interest rate of 20% in personal loan activity has made many experts worry about whether the expenditure interest rate has been applied the ceiling interest rate of 20%. Even though, stabilizing the interest plan of personal loans, including expenditure loan which is still somehow disorder, this does not comply with the rules of the market economy.

Then, Director of Legal Department of the State Bank of Vietnam said that, to implement the regulations of the Civil Code in 2015 relating to the Bank’s operations, the SBV is going to detail the loan interest rates in a loan circular (replacing Decision No. 1627/2001/QD-NHNN launching the loan regulations of credit organizations for customers)

Therefore, in article 16 of the draft circular on expenditure loans in financial companies, the SBV has not regulated the ceiling interest rate of expenditure loans. Accordingly, the draft circular allows credit organizations and customers to negotiate interest rates and fees for credit issuance in bank operation of those credit organizations in accordance with the law. However, when the customers do not pay the loan interest at due date, the late loan interest rate will be calculated to the negotiated interest rate but not exceed 10%/year over the late loan interest amount in the late payment period.

According to the explanation of the SBV, allowing financial companies and customers to negotiate the interest rate of expenditure loans to reduce the public frustration on interest rates in the past time, protect the customer’s benefit and satisfy the State management requirements will provide healthy and sustainable development of expenditure loan activity.

Regarding this matter, a banking financial official, Master Nguyen Tri Hieu stated that: this is really a “great turning-point” showing the radical view from SBV which supports the credit growth of which expenditure credit is an essential need for life improvement. Moreover, applying the ceiling interest will make difficulties for financial companies because the ceiling interest rate is much lower than the current interest rate, not sufficient to compensate for risk operation and management of these organizations.

Need more realistic

In order to avoid suspicion, the draft requires financial companies to provide and explain fully, exactly for customers to understand clearly the related information that there must be at least information on loan interest rate in calculation of percentage rate per year, charges related to the expenditure loans and applicable charge rates before signing the contract of expenditure loans, and notify the customers the of total interest amount as well as payable charges during the loan period.

According to the Director of the School of Banking and Finance, National Economics University, Assoc.Prof.Dr. Dang Ngoc Duc, the capital loan has still been synchronous; our financial system is too strong to meet the increasing demand of expenditure loans. Therefore, people have to approach ‘bad credit” that makes the interest rate of expenditure loans increase at a sharp level.

In addition, Master Nguyen Tri Hieu, said in fact the interest rate of expenditure loans in credit organizations is open, the interest rate in non-credit organizations is still controlled at ceiling interest of 20% in accordance with the Civil Procedure Code. This rate is to prevent the risk for customers from paying loans in “bad credit” but this still does not comply with the market rules on interest management by administrative policies. Moreover, it is difficult for managing agencies to control the loan interest rates of non-credit organizations.

Therefore, Assoc.Prof.Dr Dang Ngoc Duc said, besides the issuing of strict management mechanism by legislation, the managing agencies should release measures to develop the financial company system, because this is an effective additional system for the commercial banks in order to meet the demands of customers who are not qualified to understand banking standards. Only by improving synchronously the whole system and increasing the quality of credit approach, can the interest rates for expenditure loans reduce to a reasonable rate.

In general, if provisions on expenditure loans in the draft circular of the SBV are implemented, that will draw a new, brighter picture for expenditure credit activity. Master Nguyen Tri Hieu said that: the State authorities have to propagate and warn the people against “bad credit”, understand clearly their benefits and obligations when borrowing expenditure loans in financial companies. The loan activities must be controlled by a contract with clear provisions, not by inflexible administrative policies.

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In other words, expenditure credit should be encouraged reasonably to support economic development. However, the SBV and managing authorities should issue more reasonable, realistic policies with people and operation of the financial companies to boost the general development of the banking-finance sector.