Draft law requires banks to offer consumer credit via finance companies Commercial banks will be forced to stop providing consumer loans if they don’t have finance companies of their own, under a draft document being compiled by the State Bank of Vietnam.   The draft has attracted special attention from bankers as most of them now want to develop retail banking services after a long period of providing loans to businesses. The central bank, when compiling the legal document, said it was necessary to separate consumer lending from banking operations and put lending under the management of finance companies. This would also help make clear the responsibilities to be taken by finance institutions, while commercial banks can only take limited responsibility for their contributed capital. However, analysts have warned that the regulation, if realistic, would do more harm than good. Bankers understand that subprime customers are not their subjects. And if finance companies are put under commercial banks, this would push commercial banks into subprime lending. Do Thien Anh Tuan, a lecturer of the Fulbright Economics Teaching Program (FETP), noted that the splitting of consumer lending from commercial banks was not used in many other countries. Providing consumer credit is usually a basic operation of retail banks. An economist noted that commercial banks need to be given the right to decide whether to set up finance companies of their own, depending on their business strategy. HDBank and VPBank have bought two finance companies to implement their specific business plans, with the focus on targeted clients. OCB does not intend to set up a finance company, though it is also planning to develop retail banking services. The economist said the central bank, by setting up the regulation, has tried to pave the way for restructuring of finance companies, most of which are in bad condition. He noted that the deal of Western Bank merging with PetroVietnam Finance Company (PVFC) to form PVcomBank was a “typically perfect mission”. Non-bank finance institutions, including finance companies, are a part of the government’s financial system restructuring project. What will happen if the draft regulation turns out to be successful? The economist said there would be a new wave of finance companies, and many merger & acquisition deals. According to the State Bank, there are 17 finance companies and 41 commercial banks operating in Vietnam. The banks will have to set up finance companies themselves or take over existing finance companies. However, it would be difficult to do both. Under the government’s Decree No 141, a finance company must have the minimum legal capital of VND500 billion. This means that a bank will have to have VND500 billion to own a finance company, which is believed to affect bank cash flow and safety indexes. Kim Chi, VietNamNet Bridge