Individual loan market stagnates

A high-income residential area in Ha Noi's Hoang Mai District. The individual loan market, including mortgages, home improvement loans and consumer loans, has failed to ignite due to consumer concerns over high borrowing costs, vague lending conditions and fears of jeopardising collateral. — VNA/VNS Photo Hong Hoa

HA NOI — The individual loan market, including mortgages, home improvement loans and consumer loans, has failed to ignite due to consumer concerns over high borrowing costs, vague lending conditions and fears of jeopardising collateral.

With commercial banks now regularly charging 17-18 per cent per year on consumer credit – and, in some instances, as high as 20 per cent – would-be borrower Do Hai was typical of many consumers when he said, "I am applying for a VND1 billion [US$52,631] consumer loan from Asia Commercial Bank, but I am starting to think twice about it."

With a monthly household income of VND35 million ($1,842), two years of steady employment, and a parcel of land as collateral, Hai was still facing interest of 16.5 per cent interest per year on a five-year loan. In the first month alone, he was facing a total payment of VND30.4 million ($1,600) on principal and interest.

Lending conditions are no easier for smaller loans.

Quang Minh, an employee with a private company, was turned down by three banks for a loan of just VND30 million ($1,578) to repair his home because his monthly income was less than VND5 million ($263.16) and he could not get his employer to co-sign on the loan.

"It is not so easy to get a piece of that cake," said high school teacher Nguyen Thi Hong, who has been turned down for loans more than once. "I feel their conditions are made to deter borrowers."

The individual loan market already focuses on more affluent economic hubs like Ha Noi, HCM City, Hai Phong, and Da Nang, targeting borrowers who own their own homes and are steadily employed by enterprises or governmental agencies.

But the contracting economy and sluggish property and securities markets have left commercial banks unwilling to disperse capital on personal loans viewed as having higher risk.

"We have to post strict criteria because individual loans and mortgages are very risky," said a senior official at An Binh Bank who asked to remain anonymous as she was not authorised to speak to the media.

Some lenders also said that, while the profit margin on these loans was narrow, the costs of monitoring collateral and collections was high.

"We have too much to do for such a small profit," said Nguyen Viet Khoa, a consumer loan officer at Vietcombank.

Asia Commercial Bank deputy director Nguyen Thanh Toai agreed, saying that his bank was focusing on business loans. Techcombank, DongA Bank, Lien Viet Bank and the Mekong Housing Bank were all reportedly following a similar strategy.

Some potential borrowers are also wary of applying for loans for fear of losing their collateral.

Nguyen Manh Hung, a homeowner in Ha Noi, said he neglected to apply for a home improvement loan during last year's subsidised-interest loan programme for fear of losing his home if he were unable to make payments on time.

There were many stories going around, he said, of banks foreclosing on properties after adjustable interest rates terms caused rates to spike, leaving borrowers unable to afford the higher payments. —VNS