Banks target growth in consumer lending
Banks target growth in consumer lending
Banks plan to explore mergers or acquisition of financial institutions, as well as the establishment of new financial companies, to ensure a healthier bottom line by offering more consumer loans.
At recent shareholders meetings, at least three banks, Saigon–Ha Noi Commercial Joint Stock Bank (SHB), Maritime Bank and Vietcombank, have asked shareholders to support plans to acquire or set up financial companies.
At its shareholders meeting last month, SHB's board of directors sought approval to merge with and restructure a financial company that would become the bank's affiliate and provide consumer loans.
Bank directors said such a move would add value to SHB's operations.
The Maritime Bank has also asked its shareholders to authorise the establishment or acquisition of a financial company that would specialise in developing consumer loans.
Similarly, Vietcombank has asked its shareholders to approve a plan to set up a consumer credit company.
Nghiem Xuan Thanh, general director of Vietcombank, said the retail banking market had much room to grow, but wholesale banking was not expected to develop as once predicted.
As most consumer loans are a small amount, they help banks disperse risks, he said.
Late last year, HDBank acquired Societe Generale Viet Finance (SGVF) and renamed it HDFinance.
Nguyen Huu Dang, general director of HDBank, said before purchasing the financial company, consumer lending had not been effective for the bank because of high costs.
Consumer loans are generally small, but they must also comply with the strict loan approval process at the bank.
After HDBank acquires a financial company, small loans below VND30 million (US$1,420) are then transferred to HDFinance.
HDFinance, which has modern management technology, can approve the loan in 30 minutes to an hour, which is much faster than the time needed for bank approval.
Banks prefer to restructure existing financial companies instead of establishing new ones as these companies have market experience, and, thus, risks are lower, Dang said.
Consumer credit focus
According to economist Nguyen Tri Hieu, capital mobilisation at banks has been good, but they have faced difficulties in lending.
As a result, they need to focus more on personal loans, either through acquisition or establishment of financial companies or consumer credit companies.
Because financial companies are not required to comply with strict regulations, they can do business more easily than banks, which find it hard to thrive in the consumer loan market.
In addition, the income of Vietnamese loan applicants is sometimes hard to prove, as required by bank rules.
The banks' establishment of finance companies can help bring greater profits because of the higher interest rates on consumer loans, he said.
Although they pay a higher interest rate, borrowers of these loans do not have to deal with complicated procedures or provide collateral.
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