Consumers don't bite on bank loan bait

Hanoi (VNA) - Consumers have ignored bank enticements to take out personal loans of
up to 1 billion VND (57,188 USD).

The number of borrowers has failed to increase in the last month despite the promise
of negotiable interest rates and other attractions. The contracting economy and
stringent rules seem to explain why the commercial banks have been unable to
disperse the billions of dong set aside for personal lending.

Sai Gon Hanoi Bank is offering four-year loans of up to 300 million VND (17,100 USD)
for individuals to buy or repair houses, buy vehicles or other consumer goods
without collateral.

Lien Viet Bank will allow managers and staff of institutions and enterprises to
borrow 500 million VND (28,594 USD) for three years without mortgaged assets or
employer guarantees.

The Eastern Asia Bank (EAB) has introduced a 24-minute loan that allows customers
who are paid via EAB cards to borrow up to 50 million VND (2,859 USD) without
security.

Those paid via other bank cards can borrow 3 million VND (171.56 USD) again without
security for 12 months at a monthly interest of 1.07 percent. Tien Phong Bank
charges a yearly 10.5 percent for home purchases; building and repairs and
automobile loans.

The interest for loans secured against variable collateral is a yearly 12.5 percent
and a yearly 9 percent for unsecured loans to customers who can show they have
regular income.

The loan payments are based on primary lending balance and do not reduce during the
term of the loan.

Most international banks offer loans at 11 percent a year with a reduction for early
payment.

Hanoi-based joint stock-company employee Dong Dang Tu provides an example of why
borrowers for the loans have not been materialising.

"We intended to obtain a consumer loan to buy a flat," he said.

"I have worked in Hanoi for seven years but my family still lives in a rented
apartment."

"But my plan collapsed when the bank asked me for a red book-proving land-use rights."

"If we had land, we wouldn't want to borrow money to buy a house."

"We would save the money we need to build a house on the land."

The stringent conditions deterred Quang Minh when he went to borrow 50 million VND
(2,859 USD) from several banks to repair his house.

"Most joint-stock banks and several finance companies would lend me was only equal
to my income in four months or 24 million VND (1,372 USD) without collateral," he
said.

The collateral could include a motorbike or an automobile.

"Oh God! If I had an auto, I would be rich and wouldn't have to borrow a paltry 50
million VND (2,859 USD)," exclaimed Minh.

"My company pays my salary via a State-owned bank, so I sought an unsecured loan,"
said Tong Thi Diep.

It made no difference.

"They told me I must have a long-term labour contract with my employer but mine is
only for a year."
Do Thi Hai said the staff at a bank offering consumer loans of up to 500
million VND (28,594 USD) told her that she must have a monthly income of at
least 25 million VND (1,429 USD).

The way interest is calculated for the consumer loans also makes potential borrowers
hesitate.

Many banks calculate the interest from the original principal for the entire
duration of the loan and do not reduce the amount with payments.

The likelihood of interest rates fluctuating higher also makes for hesitancy.

Although the banks want to increase the number of consumer loans, they concede that
consumer lending still carries risks, especially unsecured credit.

Several bankers argue that banking is the management of risk and conservative
business practice is crucial to the success of commercial banks.

If they become as aggressive as investment banks, they could well pay dearly, the
bankers say.-Enditem