State Bank of Vietnam Considers Online Loan Facility | business
However, although it is still in the draft stage, there may still be difficulties in opening the doors to e-lending if the applicable laws continue to create obstacles that hamper and limit the activities of the State Bank of Vietnam to manage and to keep up with the current pace of technology development.
Move towards technology
According to the data published on the website Tima Financial Connection Floor, from 2017 to date, this entity has disbursed online loans totaling around VND108,833 billion, with the number of people applying for online loans now exceeding 9.6 million . reached. A peer-to-peer lending platform (P2P lending) also shows that people’s demand for quick loans through online channels is very high today. Lending services via online platforms are a major challenge for lending institutions, but at the same time offer an innovative shift in lending methods from offline to online.
The journey of lending institutions to break into the online lending trend must include FE Credit’s pioneering work when it launched the first automatic lending application in Vietnam called $NAP in August 2018. This application receives documents, verifies, automatically approves clients and signs an electronic contract and allows the borrower to receive a loan by bank account or mail within a day.
After the introduction, other financial companies also joined. Faced with this trend, some major banks such as BIDV and VietinBank of the State Bank of Vietnam have proposed allowing the implementation of online lending, but the management agency has not yet responded. Many banks have now implemented online lending on digital banking channels, but limited to online savings for overdrafts.
Currently, the State Bank of Vietnam is developing a draft Circular 39/2016/TT-NHNN, which will amend and add a number of articles regulating lending by credit institutions and foreign bank branches, including additional regulations on lending by electronic means.
According to the State Bank of Vietnam, this regulation follows a request from the credit institutions and is also in line with the policy set by the Governor of the State Bank of the digital transformation of the banking sector by 2025 and the 2030 direction of Vietnam according to Decision 810/QD -NHNN of May 11, 2021. If this regulation is approved, lending institutions have a great opportunity to increase outstanding loans. Banks can then serve a large number of customers at a lower cost only through automated processes with quick reviews of records.
Many problems remain
Previously, the regulator had allowed credit institutions to use “Know Your Customer” (eKYC) electronic application guidelines when opening personal payment accounts and issuing cards. However, when lending, credit institutions must comply with Circular 39/2016/TT-NHNN, while this Circular does not contain any regulations on the use of eKYC.
Currently, this problem has been solved in the draft amendment and supplement to Circular 39/2016 by opening the credit business electronically and partially eliminating difficulties in the digitization of the credit business. Early consumer lending online is expected to be implemented by the bank and explode in the near future. However, the digitized lending of the future still faces many major problems.
First, electronic transactions in the banking sector are not only subject to the authority of the State Bank of Vietnam, but also must comply with the Electronic Transaction Law. This law was enacted in 2005 and to date, technology has advanced rapidly with many regulations being redundant and outdated.
Currently, the Ministry of Information and Communications is in the process of finalizing the Electronic Transactions Law to create a unified law and create a legal corridor to carry out the transformation of activities from the physical environment to the digital environment in all industries and fields . If this law is perfected and relevant regulations suitable for the current high-tech environment are issued, including future long-term changes, new lending institutions can open up online lending as expected.
The second factor concerns lending on digital platforms that face many problems like cyber security when banks are still the target of cybercriminals. It is easy to see that personal information such as citizen identification and facial recognition can now be stolen very easily. This is a major challenge, as it requires a strong protective buffer to avoid risks, as well as legal regulations on how to deal with rights and obligations in the event of such risks. In addition, there must be rules for dealing with applications where transactions on this channel cause problems or disputes between banks and customers.
Another fundamental point that the State Bank of Vietnam has been talking about for a long time is that so far there is no agency that conducts individual credit scoring for the entire population. Currently, banks use their own system to rate their customers, while the National Credit Information Center (CIC) has yet to capture the entire population.
These are the technical aspects that must be in place if one wants to encourage e-lending. Because CIC only profiles customers with loan and credit transactions with the bank, not everyone has credit ratings. Of course, banks without a credit scoring system can still lend based on the internal scoring system or on collateral, but the risk of bad debts will increase.
For example, in the US, people have a Social Security Index, and the government can track income and determine the benefits people are entitled to. You have three individual credit scoring companies to do this. The standard score of each citizen is 800 points, then these three companies base their set of criteria to calculate the score, and all lending banks send information to these companies.
This is the basis of credit scoring. Those with bad debts, unstable jobs, or violators will have their points deducted. People with poor credit are either unable to borrow or can borrow at high interest rates, allowing them to self-discipline to improve their creditworthiness.