Borrowing from one bank to pay off another: Is it unlikely that there will be a "runaway" to the big banks?

ANTD.VN - Strict procedures, strict loan standards, along with early repayment penalties... will be issues that make it difficult for customers to borrow from one bank to pay off another.

Many major banks implement new policies

Immediately after Circular 06/2023/TT-NHNN took effect from September 1, 2023, a number of major banks implemented a policy of lending to individual customers to repay loans at other banks in advance. These banks mainly focus on the big 4 group with preferential lending interest rates of even only 6%/year.

In particular, Vietcombank is the pioneer in announcing the implementation of a policy for individual customers to borrow capital to repay loans at other banks early with a lending interest rate of only 6.9%/year.

Customers can borrow capital with a loan term of up to 30 years (but not exceeding the remaining loan term of the loan at the borrowing bank) with a maximum loan amount of 100% of the outstanding principal of the loan at the borrowing bank.

Customers are granted a grace period for principal repayment of up to 24 months and in accordance with Vietcombank's regulations. Customers are allowed to use a variety of assets to secure the loan such as: Real estate, cash, balance in deposit accounts, savings books/cards, valuable papers... of the customer or a blood relative (father/mother/child) or a spouse of the customer; or the customer's own assets at the credit institution where the loan is being made.

BIDV also announced the implementation of this policy shortly after, with interest rates starting from only 6%/year. Accordingly, customers who are borrowing capital for production and business or for living needs with collateral at other banks who want to repay their debts early and continue to pay the remaining costs according to the loan plan can go to BIDV branches nationwide to borrow capital.

Interest rates for short-term loans are only from 6%/year; for medium and long-term loans are only from 6.8%/year. Loan amounts are up to 100% of the remaining principal balance and are suitable for the next payment costs of borrowing options at other banks.

The principal grace period is up to 24 months and does not exceed the remaining principal repayment grace period of the loan. The loan term is up to 30 years and does not exceed the remaining term of the loan at another credit institution.

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Some banks have announced the implementation of the policy.

Not easy to borrow

The simultaneous implementation of this policy by large banks with an advantage in interest rates has raised some concerns about a wave of customers "fleeing" from small private banks, which have much higher interest rates than the big 4.

However, in reality, this is not easy, because the "risk appetite" of large banks and small banks is different. Normally, the loan conditions of the big 4 banking group are relatively strict, borrowers in addition to collateral must also prove their income and ability to repay the debt...

An officer of the personal customer department of a large bank said that although this policy has been implemented, up to today, the branch has not received any application from a customer borrowing to repay another bank's debt.

“In fact, before that, state banks always had much lower interest rates than private banks, so why do many customers still choose private banks? The problem is that in addition to interest rates, customers' borrowing decisions also depend on many other factors such as the ability to have their application accepted, the valuation of collateral, and the credit limit of each bank...

The story of borrowing from one bank and repaying another bank is similar. To get a loan at a new bank, customers will have to go through the entire loan procedure again, which is even stricter than the old bank and may not even meet the lending standards of that bank. Meanwhile, if the early repayment fee is included, the interest rate difference that customers benefit from will not be large," said this officer.

Regarding the issue of interest rate competition and the potential impact on banks' net interest margins (NIM), ACBS analysts also believe that the new policy will not have a significant impact on banks' NIM.

The first reason, according to experts, is that most large-value credit loans to individual customers require collateral, so customers still need to pay off their old loans early to be able to withdraw collateral from the old bank and use it as collateral to borrow from the new bank.

Second, banks typically impose a penalty fee of 1%-3% on customers who pay off their loans early in the first 1-5 years. This increases the switching cost for customers who want to borrow from a new bank to pay off their old loans early. In addition, new loans typically come with a new insurance contract, which adds to the cost for customers.

Third, each bank's risk appetite is very different. Requirements for proof of income, financial capacity, collateral valuation and credit limit on collateral value are different between banks and therefore, customers still need to satisfy the above requirements when borrowing from a new bank.

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