In HCM City, interest rates for priority sectors are around 7 per cent for short-term loans, 8-10 per cent for medium-term loans and 9.5-11 per cent for long-term loans. — Photo vietstock.vn

HCM CITY (Biz Hub) — It is necessary to further cut interest rates on long- and medium-term loans to enable companies to expand and invest in equipment and technology, the HCM City People's Committee has said.

Its vice chairwoman, Nguyen Thi Hong, said at a recent meeting with local bankers that banks' interest rates are always the focus of the corporate sector's attention especially as they made plans to step up investment and modernise technologies and equipment.

According to the HCM City Enterprises Association, the current interest rates on medium- and long-term loans given to most small and medium-sized businesses in the city are 12-14 per cent.

These are much higher than in other countries in the region. For instance, in Thailand now they are only 5-6 per cent.

In HCM City, interest rates for priority sectors are around 7 per cent for short-term loans, 8-10 per cent for medium-term loans and 9.5-11 per cent for long-term loans.

Analysts said that such rates make it very difficult for domestic firms to compete with their overseas peers, whose products have recently flooded the country thanks to the very low import tariffs as part of free trade agreements.

Inflation this year is forecast to be pretty low at just 3-4 per cent, creating favourable conditions for the banking sector to slash interest rates.

On January 27 the State Bank of Viet Nam announced its monetary policy for this year through a directive, instructing lenders to stabilise interest rates and further cut them for medium- and long-term loans by 1-1.5 per cent.

The directive also includes some policies to help the financial market mobilise funds for investment.

Banks should provide businesses credit for development of production and trading.

Economist Le Xuan Nghia said however that it would be difficult for banks to further cut interest rates since huge quantities of government bonds are being issued.

In fact, if the Government issues bonds at this rate, the interest rates would rise again if inflation exceeds 5 per cent, he warned. — VNS