Central bank warns against P2P lending

A person checks Vietnamese banknotes at a bank. The State Bank of Vietnam has told credit institutions to carefully consider signing cooperation deals with suppliers of peer-to-peer (P2P) lending services. (Photo: Saigon Times)

The central bank said in a note sent to credit institutions and foreign bank branches that the booming technology applications have boosted the growth of multiple new products and services, including P2P lending, in recent years.

The SBV proposed these credit institutions stay cautious about the tech platforms, explaining that P2P lending is a type of debt financing, allowing people to borrow and lend money without having to go through a financial institution.

In Vietnam, some companies have registered to do business as a financial counselor, financial intermediary and P2P lending supplier, but Vietnam currently has no legal framework for P2P lending, according to the central bank.

In fact, the digital-technology-based practice offers simplified lending procedures and quick disbursements to borrowers, making it a convenient lending channel. P2P lending is also expected to cope with loan sharks.

The central bank, however, stated that P2P lending poses multiple risks for all parties and may lead to unstable socioeconomic growth.

Some P2P lending firms have taken advantage of the lack of information and knowledge among residents to advertise and market their services in an unclear and inaccurate manner, resulting in misunderstandings where participants believe that all transactions through the P2P lending platform are guaranteed.

P2P lending platforms have been flourishing in recent years, but they are prone to cyber attacks, which can cause heavy losses for the parties concerned, according to the note.

By adopting the P2P lending practice, lenders may face the risk of losing money if borrowers violate the terms of the deal or commit fraud.

Apart from cases where loan sharks have taken advantage of P2P lending platforms to offer loans at exorbitant interest rates, some firms have disguised themselves as P2P lending operators to evade taxes or for multilevel capital mobilization purposes, turning borrowers and lenders into victims of appropriation or embezzlement.

Given the possible risks of P2P lending, the SBV has advised credit institutions to research the platform thoroughly to provide guidance on risks caused by P2P lending to their subsidiary companies and members.

Besides this, credit institutions were also advised to regularly review all processes and operations of their firms to prevent these risks.

The SBV also told the credit institutions to ensure the signing of cooperation deals with P2P lending firms goes smoothly in line with prevailing regulations to guarantee the safety and prestige of the banking system.

When transacting and cooperating with P2P lending firms, credit institutions should ask the P2P lending suppliers to publicize information on and the contents of cooperation deals for the media and customers, the central bank said.

Aside from keeping a close watch on deals between P2P lending and credit institutions to prevent these firms from publishing incorrect details, the credit institutions were also asked to ensure their cooperation with P2P lending suppliers produces benefits and adds efficiency, the central bank said.