Interest rates hamper credit growth

Monday, Feb 24, 2014 08:56

HA NOI (Biz Hub) — Many commercial banks are struggling with a large amount of idling capital that they are unable to disburse given the ongoing situation of stagnant domestic consumerism and weak production.

The situation raises pressing concerns related to high borrowing costs, which surpass the capacity of many enterprises. Experts argue that in order to unlock the trapped capital, banks must work to slash lending interest rates on medium- and long-term loans.

Economist Tran Du Lich said that doing so would revive domestic production and boost market demand.

The State Bank of Viet Nam gives credit priority to four sectors: agro-forestry-fishery production, small- and medium-sized enterprises, ordinary industry, and end-processing industry.

However, it is not easy to slash loan costs further; long-term deposit interest rates would have to be slashed to less than 7 per cent annually to secure the system's liquidity. Currently, banks are offering 7.9-8.4 per cent interest for long-term deposits.

Analysis based on a targeted inflation rate of 5.5-6 per cent coupled with a 2 per cent margin for forex management and the competent competition of the Vietnamese dong against the US dollar showed a vague possibility of further cuts in deposit interest rates within 10 months.

This simply means that high interest rates for long-term loans will become a thing of the past, creating a paradox: capital is abundant, but enterprises have no money.

Hoang Trong Nam, director of Dai Duong JSC, which produces brewery products, said that banks have only reduced short-term borrowing costs for one to three months, while keeping the rate afloat thereafter. Total borrowing costs were not low, and enterprises found it difficult to access capital.

According to the Viet Nam SMEs Association, these enterprises, which comprise 90 per cent of the total domestic enterprises, are practically unable to borrow money for production. — VNS

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