Black credit in Vietnam is estimated at USD50 billion, equal to around 30% of the size of the formal credit system, said a local expert at a conference in Hanoi on October 14.
Black credit in Vietnam is estimated at USD50 billion
According to Dr. Vo Tri Thanh, Deputy Head of the Central Institute for Economic Management (CIEM), black credit is part of “shadow banking” which exists along side the traditional banking system.
Using “black credit”, borrowers are not required to use any assets as collateral but can easily and quickly get money. Lending is recorded by handwritten contracts or verbal agreements that include basic information about the borrowers like name, address, commitments and signature.
This has contributed to the black credit boom.
Vu Viet Ngoan, Chairman of the National Financial Supervisory Commission, said the State Bank of Vietnam (SBV) and the commission will have specific regulations on shadow baking operations.
At the conference on the financial market restructure, experts and delegates agreed that the black credit and the shadow banking system have bad impacts on the national economy and should be restricted.
Con English, from PRISM Supervision Support Team Leader- Risk Division at Central Bank of Ireland, said strict banking regulations may actually boost shadow banking activities.
Dr. Vo Tri Thanh noted that shadow banking is not illegal, but just outside of the formal credit system and out of the hands of management agencies. This will lead to economic and social impacts, he said, adding that informal credit’s activities should be gradually formalised.
The black credit rate of 30% is quite high, said former Deputy PM Vu Khoan, adding that the traditional credit system should be consolidated to attract public confidence.
Dr. Nguyen Duc Thanh said that many people choose the black market because they do not have to complete complicated procedures as required by banks. Besides, this is the choice of people who do not have assets to use as collateral.
He also warned of a serious case in which individuals and organisations get black loans to pay banking loans. This may appear to reduce bad debt in the banking system, but in fact the rate would remain unchanged, or even higher due to the high interest rates of the black loans.
