Businesses agonise over 20% interest

Businesses are facing a million-dollar question these days: whether to continue to borrow from banks since interest rates have gone through the roof.

A garment businessman in HCM City says he went to several banks this month for a loan and the lowest rate offered was 23 per cent. At these rates, even if he toils hard, he may not break even.

A rubber industry executive says not only has he had to delay several long-term investments but also slash output this year by around 20 per cent due to lack of funds.

“How can enterprises dare borrow at such high interest rates?” asks Huynh Van Minh, chairman of the HCM City Business Association.

Without being able to borrow, businesses will not invest in modern equipment, he says, and as a result, soon their competitiveness will be weakened.

Le Xuan Nghia, deputy chairman of the National Financial Supervisory Commission, blames high inflation for the high interest rates. The year-on-year inflation in the first four months was 17.5 per cent, meaning the official cap of 14 per cent for dong deposits is not appropriate.

Many small banks have, in violation of the regulation, pushed up the rate to 18-19 per cent, but even that is lower than the 22-25 per cent bigger banks offer them on the inter-bank market.

Yet, dong deposits as of April 21 were down by 1.84 per cent from a month earlier, according to the State Bank of Viet Nam.

The Viet Nam Asset Management, in its April report, predicted that, given the continuing inflationary pressures, interest rates will not come down at least till the end of the third quarter.

But it also sees some positives. For instance, the Government has repeatedly sent clear signals that inflation control is a higher priority than growth. It has revised the GDP growth target for this year down to 6-6.2 per cent from the earlier 6.5-7 per cent.

This time the Government has also shown strong determination that it will not prematurely ease policy as it did in the past. “We expect further tightening of credit and public spending if inflation [does not ease],” says the report.

“Hence, we think inflation will eventually be controlled but it will take more time.”

Analysts expect to see improvement in inflation towards the end of Q3 when the Government’s measures show clearer effects.

Tags: unsecured loans, Vietnam banking industry, Vietnam finance, Vietnam financial, Vietnam Lending interest rates