VietNamNet Bridge – A lot of people have fallen into a trap set by finance companies. Promising simple administrative procedures, but the companies overcharge borrowers with exorbitant interest rtes.

Commercial banks, which have been burdened with the high bad debt ratios, have been trying to tighten their lending to control the credit quality. Meanwhile, individuals can easily borrow money from finance companies, if they accept to pay the high interest rates.

Dung, an officer of a software firm in Cau Giay district in Hanoi, said he receives a lot of calls from finance companies these days which invite him to borrow money from the companies.

A credit officer told him that with the monthly income of VND10 million, he would be able to borrow VND60-100 million without having to mortgage for the loan. Especially, the officer promised to disburse money within 3 days since the day Dung submits necessary documents.

“The required formalities are very simple. You just need to show some documents and receive some calls from competent officers who will to clarify some information,” the officer said.

Duong has been told that he would have to pay 2.63 percent a month in interest rate, or 31.5 percent per annum. The rate is double the consumer loan interest rates being applied by some commercial banks.

Explaining the sky high interest rate, the officer said the loans remain very attractive to people with the fixed interest rates, simple procedures and no required collateral. The 31.5 percent per annum interest rate would be applied to the whole life of loans. Meanwhile, commercial banks now tend to float the interest rates from the 4th month of the loaning.

Duong, like many other office workers, who are believed to have stable monthly income, have been “hunted” by finance companies, because they prove to be the potential clients of the lenders.

A finance expert has warned that people may fall into the “interest rate trap” set by the finance companies. The simple procedures promised by the companies would prompt people to borrow money, even if they don’t really need capital at this moment.

“I know that a lot of people have fallen into insolvency. Their monthly income is just enough to pay the principals and interest rates, while they don’t have any money left for the daily needs,” he said.

Dung said he cannot understand why legal finance companies can lend at such sky high interest rates and they are not punished by the State Bank.

He was explained that finance companies don’t bear the control of the State Bank. “We are a foreign invested enterprises, and we don’t have to follow the State Bank’s regulations on interest rates,” a credit officer said to him.

The 2005 Civil Code stipulated that lending interest rate must not be higher than 150 percent of the prime interest rate – the rate set up by the State Bank. However, at present, the credit contracts do not bear the regulations any more, and they have been covered by the 2010 Law on Credit Institutions.

A banking legal expert affirmed that the 30 percent per annum interest rate is overly high, but this does not come contrary to the current regulations, because the rate is set on the basis of negotiations between lenders and borrowers.

A banker said finance companies are not allowed to mobilize capital; therefore, the input interest rates of the companies may be as high as the banks’ lending interest rates. The high capital mobilization cost, plus the high expenses on the retail network force them to set up high interest rates to cover expenses.

VNE