Interest rate cuts needed, but unlikely

Tuesday, Sep 22, 2015 19:57

Businesses expect more interest rate declines, but there is little chance for further rate cuts this year. -- Photo

HA NOI (Biz Hub) — The central bank should consider more interest rate cuts to help enterprises enhance their business efficiency, Viet Nam Chamber of Commerce and Industry (VCCI) Chairman Vu Tien Loc said.

Loc raised the suggestion at a seminar in Ha Noi today, adding that the current interest rates were high compared with the inflation rate, which was below one per cent and likely to end at two per cent this year.

The latest State Bank of Viet Nam (SBV) report said dong lending rates ranged between 6.8 per cent and nine per cent per year for short-term loans and between 9.3 per cent and 11 per cent per year for medium to long-term loans.

In several prioritised sectors, the lending rates were six to seven per cent per year for short-term loans and nine to 10 per cent per year for medium to long-term loans.

Loc said that despite significant support from banks during tough times, many businesses still found it hard to access loans, and up to 60 per cent of domestic firms were struggling, with hardly any profits.

SBV Deputy Governor Nguyen Thi Hong reported that the total capital amount the banks had committed to assist enterprises, in conjunction with provinces and cities nationwide, had reached more than VND458 trillion (US$20.36 billion), as of August 2015.

Complicated economic developments around the world this year, especially plummeting oil prices and the sharp Chinese yuan depreciation, were hindering domestic firms' operations and restricting their competitiveness in both the home and international markets, she said.

Central Institute for Economic Management Deputy Director Vo Tri Thanh, on the other hand, said there was little chance that interest rates would decline over the next few months.

He said interest rate adjustments depended on not only inflation but also exchange rates, which were seeing a significant impact from the uncertainty over interest rate hikes in the United States.

The current lending rates should also be maintained to ensure that government bonds are saleable. Money raised from government bond issuances during the first eight months of 2015 were modest, reaching less than half of the year's target of VND250 trillion ($11.11 billion).

"It's already a success that the SBV has kept interest rates at the present levels," he said.

Today, VCCI Chairman Loc also asked the central bank to allocate additional credit quotas for banks, since many of them had depleted their quotas while they were still able to lend more.

The seminar heard that the overall lending could grow by 15 per cent to 17 per cent this year, although the targeted growth rates were 13 per cent to 15 per cent.

Lending had expanded 10.23 per cent during the first eight months of 2015, much higher than the 5.62 per cent recorded for the same period in 2014.

Deputy Governor Hong said the central bank could adjust the quotas, but any adjustments would depend on the health of the banks and on macro-economic conditions.

"We should not underestimate [the risks of] inflation," she said. "The government and the SBV have set inflation goals not only for 2015 but also for many years ahead. We should calculate how to maintain inflationary stability throughout the targeted phase."

Meanwhile, banking expert Can Van Luc pointed out that enterprises' weakness in absorbing capital had also restricted their access to loans. Many companies still lacked proper investment projects and had yet to prove significant inventory reduction or efficient business expansion.

He suggested that companies should foster mutual links and the government should spur development of the capital market and investment funds to create more capital-mobilising channels for businesses. — VNS

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