The State Bank of Vietnam (SBV) is seeking opinions on a draft amendment to Circular 43/2016/SBV (“Draft”) that directly regulates lending practices of consumer finance companies.
The Draft separates indirect loan disbursement to goods or services providers and direct disbursement to borrowers. The latter category is the target of the new Draft and proposes that direct disbursement can only be done to existing borrowers with good credit scoring histories based on internal credit control and no bad debt according to CIC (in practice, this would be a borrower that started with a consumer durable/two-wheeler loan). This aims to help decrease the overall NPL level of consumer finance companies. However, competition in sales finance (consumer durables and two-wheeler loans) will likely intensify as consumer finance companies focus on expanding their client base, in our view.
On initial reading, it appears the Draft aims to restrict direct loan disbursement to not more than 30% of the total loan book of a consumer finance company. If this reading is correct, this will clearly have an impact on FE Credit’s business model given 77% of the loan book is cash loans (though we don’t know how much of this would be classified as direct loans). We caution that not all items in draft amendments make it to the final copy (e.g., an attempt to push up real estate risk weightings to 250% in the draft of Circular 19/2017 did not make it to the final amendment).
The Draft also regulates that debt reminder activities shall only be from 7am to 9pm and may not include threatening customers. Debt reminders and collections are not allowed toward organizations and/or individuals that have no obligation to repay the debt.
The Draft proposes that information disclosure regarding sales points, internal regulations, the interest rate framework and consumer loan balance should be required to be reported to the Banking Supervision Inspection Agency and SBV.
- VCSC