High lending interest rates strangle businesses

Most businesses complain that lending interest rates have been inflated to unaffordable levels.

18 percent? Same old story

Many commercial banks are now lending at 18 percent per annum, the new interest rate set after the State Bank of Vietnam (SBV) removed the cap on the lending interest rate.

Nguyen Thanh Tan, director of a construction stone export company, asserts that 18 percent is not the new lending interest rate at all. Tan explained that, previously, the rate cited in credit contracts was 12 percent, but the actual interest rate was 17 or 18 percent, because banks collected additional fees.

Tan noted that 18 percent is very high, under which businesses can hardly make a profit.

Quang Binh, director of a Hanoi service company, argues that, even when SBV set the lending interest rate ceiling at 12 percent, most had to pay 16-18 percent, or they had no capital.

As such, the SBV decision to remove the ceiling, which is viewed as a breakthrough decision in monetary policy, aims only to legalise what commercial banks have done for a long time.

SHB Bank is lending at 15-16 percent for medium and long-term loans to businesses and 16-18 percent for consumer loans. The same applies for other banks such as SeABank and An Binh Bank.

The latest SBV report reveals that the short-term lending interest rate is 12 percent per annum (the interest rate ceiling is still applied to short-term lending). As for medium and long-term loans, state-owned banks are lending at 14-15 percent, while joint-stock banks lend at 15-17 percent. Some smaller joint-stock banks are offering 18-20 percent.

Over 20 percent? It’s no surprise

Several days ago Nguyen Thanh Hoang intended to borrow 300 million dong. He gave up when told that he had to pay a 22 percent interest rate. The bank officer told him that 22 percent is the regular interest rate applied by most banks for individual client loans.

Even businesses sometimes also have to endure such high interest rates.

Hoang Minh, Director of Duc Minh Real Estate Company, recently had to borrow 12 billion dong from a bank at a rate of 21 percent.

Minh commented that small businesses and service companies, especially those operating in fields that banks consider “sensitive”, must bear interest rates over 20 percent.

Economist Bui Kien Thanh explained that, instead of raising the basic interest rate to allow a hike in the lending interest rate, SBV removed the interest rate ceiling.

He observed that many businesses cannot make profits with interest rate of 17-18 percent. Under the earlier, four percent interest rate subsidy program, they paid only 6.5 percent. When the program ended, they paid 12 percent. Now, they may face rates of 17-18 percent and even more than 20 percent per annum.

Thanh remarked that overly high interest rates will be the big challenge for businesses in 2010.

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