SBV is drafting a circular to replace the current Circular 43 on the management of consumer credit, attempting to set a limit on the disbursement of cash.

Under the draft, the cash to be valued by lenders must not be higher than 30 percent of total consumer outstanding loans.

Meanwhile, finance companies can only lend in cash to loyal clients who have good debt payment profiles.

The compiler said there are latent risks in lending cash directly to customers because it is difficult for lenders to control the capital use to ensure that the capital is used for the right purposes. A cap on disbursement rate will be necessary to help consumer credit develop in an effective and sustainable way.

Meanwhile, Nguyen Tri Hieu, a renowned banking expert, believes that there is no need to make an intervention in finance companies’ business.

He said finance companies must be given the right of self-determination. Finance companies, not state agencies, have to take responsibility for their bad decisions.

Hieu went on to warn that the limitation may make black credit even more serious in Vietnam.

“A client wants to borrow money to pay for hospital fee, for example. If he cannot receive enough money because of the limitation of 30 percent set by the State Bank, he will have to seek capital from black credit,” HIeu said.

“So, the limit on cash to be disbursed won’t help clear black credit as expected,” he warned.

Consumer credit products are diversified to satisfy borrowers’ different needs for tuition, weddings, house repair, daily expenses and spending on special days. In these cases, borrowers need cash.

Can Van Luc, chief economist of BIDV, does not oppose the idea of setting a cap on the amounts of cash to be disbursed, but questions the 30 percent limit proposed by SBV.

“Why 30 percent? Did the state management agency survey the consumer loans at finance companies before setting the level?” he said.

While agreeing that it is necessary to tighten control over consumer credit, Luc believes that it is necessary to reconsider lending activities to find a reasonable limit.

An analyst commented that the limitation would be a ‘double edge’ knife.

While it would help better control consumer loans and better protect lenders, it would also reduce the opportunities for true consumers accessing orthodox financial services.

Though agreeing that consumer lending is a risky business, the analyst still believes that it would be better to let finance companies decide whether to lend and how much to lend.

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