However, although it is still at the project stage, it could still face difficulties in opening the doors to electronic lending if the current laws continue to create obstacles that hinder and limit the activities of the State Bank of the Vietnam to manage and keep up with the current pace of technological development.
Go to technology
According to data published on the Tima Financial Connection Floor website, from 2017 to present, this unit has disbursed loans online totaling approximately VND 108.833 billion, the number of people applying for loans online now reaching over 9.6 million. A peer-to-peer lending (P2P Lending) platform also shows that people’s demand for quick loans through online channels is very high today. Credit services via online platforms are a big challenge for credit institutions, but at the same time offer an innovative shift in offline to online lending methods.
Lending institutions’ journey to enter the online lending trend must include pioneering FE Credit, when launching Vietnam’s first auto loan application called $NAP in August 2018. This application receives documents, verifies, approves automatically customers, signs an electronic contract and allows the borrower to receive a loan within a day via a bank account or post office.
After this introduction, other financial companies also joined. Faced with this trend, a number of big banks such as BIDV and VietinBank have proposed to the State Bank of Vietnam to allow the establishment of online loans, but the management agency has not yet answered. Meanwhile, many banks have introduced online lending on digital banking channels, but only limited to online savings for overdraft loans.
Currently, the State Bank of Vietnam is preparing draft Circular 39/2016/TT-NHNN, amending and supplementing a number of articles to regulate the lending activities of credit institutions and branches of foreign banks, including additional electronic lending regulations.
According to the State Bank of Vietnam, this regulation stems from a request from credit institutions and is also part of the policy of digital transformation of the banking sector until 2025 and orientation until 2030 which has been set out by the Governor of the State Bank. of Vietnam under Decision 810/QD-NHNN of May 11, 2021. If this regulation is approved, credit institutions will have an excellent opportunity to grow their outstanding loans. Banks can then only serve a large number of customers through automated processes, with rapid file reviews at a lower cost.
Many problems remain
Previously, the regulator allowed credit institutions to use Know Your Customer (eKYC) electronic application guidelines for opening personal payment accounts and issuing cards. However, in lending activities, credit institutions must comply with circular 39/2016/TT-NHNN, while this circular does not contain any regulations on the application of eKYC.
Currently, this problem has been solved in the draft amendment and supplement to Circular 39/2016 by opening lending activities electronically and partially removing the difficulties of digitizing lending activities. It is expected that the first consumer loans will be set up online by the bank and will explode in the near future. However, digitalized lending business in the future still faces many major problems.
The first is that electronic transactions in the banking sector are not only related to the authority of the State Bank of Vietnam, but also must comply with the Electronic Transactions Law. This law was enacted in 2005 and so far the technology has developed at a rapid pace with many regulations becoming redundant and obsolete.
Currently, the Ministry of Information and Communications is finalizing the Electronic Transactions Law to build a unified law and create a legal corridor to carry out business transformation from the physical environment to the digital environment in all industries and fields. If this law is perfected and there are relevant regulations suitable for the current high-tech environment, including future long-term changes, then new lending institutions will be able to open online lending as planned.
The second factor relates to loans on digital platforms which face many problems like cyber security while banks are still the target of cyber criminals. It is easy to see that now personal information such as citizen identification and facial recognition are very easily stolen. This is a huge challenge as it requires a strong buffer of protection to avoid risks, as well as legal provisions to manage rights and responsibilities in the event of such risks. In addition, there must be regulations to manage the applications in case of problems or disputes between banks and customers during transactions on this channel.
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 performs individual credit rating for the whole population. Currently, banks are deploying their own system to score their customers, while the National Credit Information Center (CIC) has not yet covered the entire population.
These are the technical issues that must be present if one wants to promote the loan electronically. Since CIC only creates customer profiles with loan and credit transactions with the bank, it does not give credit scores to all individuals. Of course, without a credit rating system, banks can still continue to lend based on the internal rating system or on collateral, but the risk of bad debts will become higher.
For example, in the United States, people have a Social Security Index, and the government can track income and determine what benefits people are entitled to. They have three individual credit rating 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 the lending banks send information to these companies.
This is the basis of the credit rating. People with bad debts, unstable jobs or violations will have their points deducted. People with low credit ratings will not be able to borrow or can borrow at high interest rates, allowing them to self-discipline to improve their credit rating.