The State Bank of Vietnam (SBV) recently released a draft circular onconsumer lending following the setting up by commercial banks ofsubsidiary finance companies for the purpose.

The circular aimsto specify and limit risks on consumer loans of commercial banks tonon-standard clients, including those with either low incomes or creditscores, or with no credit history.

According to SBV, there arecurrently no specific legal regulations on finance companies' consumerlending, which is becoming increasingly important to the country'ssocio-economic development and is helping to raise people's livingstandards.

Commercial banks and finance companies are the twomajor providers of consumer lending in Vietnam, so the promulgation of alaw to regulate this activity is essential, the SBV said.

Inrecent years, several commercial banks have set up subsidiaries forconsumer lending, including HDBank, which bought Viet-SG FinanceCompany, and VPBank, which purchased Vietnam Coal-Mineral FinanceCompany.

Also, a number of foreign companies with experience inconsumer credit were likewise setting up finance companies for consumerlending in Vietnam. The SBV predicted the setting up of subsidiaries inconsumer lending to become a major trend in the coming years.

Accordingto the draft, recently released for comment, finance companies will beallowed to provide consumer lending through hire-purchase arrangements,overdraft via credit cards and issuance of buyers' passes.

Thedraft also said the interest rates would be based on agreements betweenfinance companies and consumers which, in turn, would be based onconsumers' solvency and compliance with the SBV regulations on interestrates.

Interest rates on overdue debts must be made public andwill not be allowed to exceed 150 percent of the interest rate forconsumer lending that had been agreed on in the lending contracts.-VNA