Banks reluctant to pass on interest rate cut

Monday, Mar 31, 2014 09:54

With high interest rates, manufacturers earn very low profits because they cannot raise the prices of their products in a difficult economy.Photo 24h

Compiled by Le Hung Vong

The State Bank of Viet Nam has lowered the interest rate on short-term deposits (one to six months) from 7 per cent to 6 per cent annually, a move that would normally result in lower rates for loans from commercial banks. But banks are still concerned about customers' deposit needs and question whether they will apply for business loans.

Tran Quoc Manh, general director of the HCM City-based Sadaco, said that banks would shy away from giving loans to priority projects.

According to Viet Nam Investment Review (VIR) newspaper, many HCM City-based enterprises have been paying interest rates of 9-10 per cent for their short-term loans provided by banks with State shares.

With high interest rates, manufacturers earn very low profits because they cannot raise the prices of their products in a difficult economy.

Manh said although the number of orders received by wood-processing enterprises in the city rose in the first quarter, few of them had asked for loans with a high 10 per cent interest rate.

Such a rate did not allow them to earn enough profit, he added.

"Banks should set interest rates of 6 to 8 per cent for their short - term loans," Manh was quoted by VIR as saying.

In addition to lower interest rates, the central bank should create more favourable conditions for businesses to access these loans, he said.

Meanwhile, customers have proposed that banks should provide "prestige – guaranteed" loans by considering the efficiency of customers' business projects. But few businesses have access to these prestige – guaranteed loans.

Foreigner restrictions

The draft amendment of the law on real estate trading has allowed foreigners and Viet kieu (Overseas Vietnamese) to take part in the local real estate market, but foreigners have yet to be permitted to trade houses.

At the 26th meeting of the National Assembly Standing Committee on March 10, the Minister of Construction Trinh Dinh Dung submitted a draft law to the Committee that aims to loosen trading conditions for many entities in the real estate market.

The draft law consists of two key points that would open trading conditions for overseas Vietnamese and foreigners. It would allow overseas Vietnamese to trade in the market by investing in real estate projects, leasing or selling homes, and investing in technical infrastructure works on leased land for re-lease or transfer.

Foreign individuals and organisations would be able to make investments in construction and leasing, but they would not be allowed to trade properties and transfer land-use rights.

According to the Construction Ministry, the Land Law 2013 has yet to allow foreign individuals and organisations to transfer land-use rights.

The draft law also allows investors to lease properties to be built in the future, not just existing projects. This would help investors mobilise capital from future tenants.

Nguyen Hanh Phuc, director of the National Assembly Office, told the draft compilation board, as quoted by Thoi Bao Kinh Te Sai Gon (Saigon Economic Times), that such a mechanism should be established "to control the capacity of foreign investors".

Breeding losses

The local animal husbandry has suffered losses up to VND27 trillion (US$1.3 billion) in the past two years (beginning March 2012) as prices of their products plunged.

Nguyen Dang Vang, chairman of Viet Nam Animal Husbandry Association, said supply had exceeded demand while selling prices of these products were lower than production costs, causing major losses for animal breeders.

News about animal diseases, especially bird flu, also had an impact on the local animal husbandry, lowering prices of its products by 10 per cent, according to a survey conducted by the Viet Nam Animal Husbandry Association.

Vang told Tuoi Tre (Youth) newspaper that the oversupply of the local animal husbandry's products began over six years ago when the local animal husbandry began to shift from small-scale household husbandry to large-scale farming.

In the 2010–2011 period, the owners of these animal breeding farms earned big profits as prices of their products rose sharply.

At that time pork was sold for VND65,000-73,000 per kilo, compared with production costs of about VND36,000-37,000 per kilo, while chicken was sold for VND50,000-60,000 per kilo, compared with VND45,000 per kilo recently.

Vang said in 2011 when the property market was stagnant, many investors transferred their investments from the real estate market to the animal husbandry industry, making the situation even worse. In 2012, the oversupply of local animal husbandry sector's products forced prices down.

Inaccurate and outdated information about the market was also another reason behind the present oversupply of the local husbandry's products.

For example, statistics from the Animal Husbandry Department (under the Ministry of Agriculture and Rural Development) showed that the average production of a hen in Viet Nam is 140 eggs while it could actually produce 300 to 310 eggs per year.

The National Statistics Bureau said the country's poultry meat production is slightly over 800,000 tonnes per year while the Viet Nam Animal Husbandry Association said that Viet Nam's poultry meat had reached over two million tonnes annually.

"The National Statistics Bureau's figures are ‘official' statistics," said Vang.

If the demand for animal meat rises by 5 per cent, the existing animal husbandry farms in the country could be fully used in two to three years.

"There should be no more investments in the existing animal husbandry's farms and facilities," Vang said.

Still, the cattle husbandry can be further developed because the demand for diary and beef products is on the rise, while supply from local sources is much lower.

Vang said Viet Nam had been importing annually nearly 200,000 oxen from Cambodia, Laos and Australia plus over $1 billion of dairy products for local demand.

The local animal husbandry industry must target large-scale farming, apply advanced technologies in selecting high-quality breeding stock and modern management mechanism, and produce animal feed for their herds (which are bred by local farmers) to reduce costs and control animal diseases, he said. — VNS

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