HCM City (VNA) - Consumer credit in HCM City has grown by an average of 20 percentper year during 2012-2015, according to the State Bank of Vietnam.

Nguyen Hoang Minh,Deputy Director of the State Bank’s HCM City branch said consumption loansduring this period accounted for between 6 percent and 8 percent of the city’stotal outstanding loans.

This figure, he said,has strongly increased this year. By the end of October this year, it was 201trillion VND (8.9 billion USD), accounting for 14.7 percent of the city’soutstanding loan.

This figure willcontinue to rise, Minh said, explaining that 40 percent of consumption loans inHCM City are for buying cars, houses and housing upgrades.

To develop consumptionlending activity in HCM City in particular and in the country in general, Minhsaid that the State Bank was collecting ideas to further develop a consumptionloan draft law, which is planned to be effective next year.

This is the second timethat the SBV has sought to collect ideas about consumer credit. Until now,regulations have applied to all lenders, including banks and credit companies,even though their borrowers are different.

Thus, the new draftregulation is aimed at helping to create convenient conditions for bothborrower and lender as well as to have a more transparent market.

At a recent conferenceorganised in HCM City, Bui Quang Tin, an expert from Banking University in HCMCity said the second draft had many updates necessary for the current time whenconsumption lending is strongly developing.

“It is amended withstricter regulations and will help the market to be more stable,” Tin said.

The new draft would helpconsumers get official loans from credit companies instead of from the blackmarket, he said.

Sharing the same idea,Vuong Thuy Tien, a high-ranking official from private lender Home Credit Vietnamsaid the draft had clear regulations about the rights and responsibilities ofcredit companies.

“This is an importantamendment in order to have a sound credit market as well as to protect customerrights,” she said.

However, experts saythat some of the proposed changes to the regulation don’t reflect reality.

One among them is theproposed regulation saying that the maximum consumption loan should be 10million VND (444 USD).

Pham Hai Van, LegalDirector of FE Credit, said this level was too low.

She explained that thecurrent smallest loan to buy a motorbike was about 17 million VND (772 USD).

Sharing the same idea,Tien from Home Credit said loans ranging from 10 million VND (444 USD) to 30million VND represented 71 percent of her company’s total contracts.

Only 10 percent ofcontracts are valued under 10 million VND.

They also said that themaximum interest rate for overdue debt of 150 percent per month on top of theinitial interest rate in the proposed regulation was not high enough.

Tien said thisregulation would force credit companies to change their products. For instance,Home Credit is currently able to charge 0 percent interest on about 65 percentof the company’s debt. If the proposed cap of 150 percent on overdue loans wereimplemented, Home Credit would not be able to afford to offer loans with 0 percentinterest rates.

This new regulationshould not be applied to loans with tax exemptions, she said, adding that thatwould cause difficulties for a credit company to control bad debt.

Tin said “currently, thedraft protects consumers more than credit companies, who would face manydifficulties in getting loans back.”

He suggested applying amaximum interest rate of 200-250 percent in addition to the initial rate forbad debt. For debt with tax exemptions, the rate should be based on the amountof debt that the consumer had not paid.

Minh affirmed that StateBank of Vietnam was still collecting ideas from related subjects. All ideaswould be sent to the bank for further consideration.-VNA