Many commercial banks such as Sacombank and DongABank are applying an interest rate of 24-25 per cent to credit card users who are unable to pay back loans within 45 days. — Photo vietnamnet

HCM CITY (Biz Hub) — Hoang Ngoc Hoa in HCM City's Tan Binh District needed money to buy a new house so she used the overdraft service of a commercial bank near her home, using her bank card to access a loan.

Hoa, however, was surprised to discover that she was required to pay an interest rate of up to 25 per cent for the loan.

Like Hoa, many other bank customers in HCM City have experienced the same sticker shock.

Many commercial banks such as Sacombank and DongABank are applying an interest rate of 24-25 per cent to credit card users who are unable to pay back loans within 45 days.

The lenders said that they had to hike the rates for such loans because of the high risks incurred by offering this consumer credit service.

But commercial banks have benefited a great deal from these small business loans, which are mainly personal loans.

Independent market observers have acknowledged this, saying that most local banks now were offering loans with interest rates of between 6 and 7 per cent per year to enterprises.

But they were applying interest rates of between 12 and 14 per cent to consumer credit, most of them small business loans, which are often called microloans.

People who use credit cards have to pay interest rates of up to 20 or 25 per cent if they use the banks' overdraft service.

An overdraft occurs when money is withdrawn from a bank account and the available balance has gone below zero.

In addition, some banks are ready to offer personal loans with low interest rates, but those rates are applied for only the first few months of the credit contracts.

For instance, TPBank is offering loans with an interest rate of 4.5 per cent per year for the first six months to people who want to buy autos after the fund is disbursed.

OCB offers an interest rate of only 5.5 or 6 per cent for personal loans, but only for the first three months after disbursement.

Some financial companies have also offered non-collateral personal loans with simple procedures, but their interest rates are very high.

Meanwhile, lenders have decreased deposit interest rates, to only 7 or 5.5 per cent per year.

As a result, lenders have made big profits because of this wide gap between the interest rate of small loans and deposit interest rates.

Nguyen Hoang Minh, deputy director of the State Bank of Viet Nam's branch in HCM City, admitted that the lending interest rate of 13 per cent and upwards was applied mostly to personal or small loans.

Because of this, the banks' profit margin from small loans had significantly contributed to their total outstanding credit.

At Sacombank, for instance, the bank's pre-tax profit in 2014 was VND3 trillion (US$141.2 million), of which 50 per cent was contributed by personal-loan customers, including small traders.

Other credit organisations have also benefited. OCB's profit from personal loans, for example, made up 40 or 45 per cent of the bank's total profit.

A leader of Sacombank said the difference in the bank's lending and deposit interest rates was 4 per cent on average, but the profit margin from personal loans was much higher than this rate.— VNS