High interest rate cripples business

Preventively high interest rates asked by commercial banks are driving corporate borrowers away as enterprises say they cannot afford the borrowing cost as high as 19% a year. Despite the lending rate is capped at 12% a year by the central bank, lenders are still allowed to apply negotiable rates for medium- and long-term loans and therefore have pushed lending rates to as high as 18% to 19% a year. Ho Huu Hanh, director of the HCMC branch of the State Bank of Vietnam, said many enterprises have bemoaned the high rate. Huynh Quanh Thanh, general director of Hiep Long Co. Ltd., said his company now could not borrow funds due to the high cost. “At the current interest rate, only trading firms that have shorter business cycles can borrow. We have decided to relinquish taking out loans when banks raised the rate to 15% a year,” he said. Thanh remarked that given current business conditions, a more agreeable lending rate should be in the range of 10% to 12% a year. “The global economic recovery is still in the initial phase with many uncertainties ahead, so enterprises dare not invest much money into business expansion,” he explained. Tran Quoc Manh, board chairman of Saigon Production-Trading Joint-stock Company, said that the current lending rate at banks is beyond reach of many manufacturing enterprises. “The current rate of 17%-18% a year on medium and long-term loans is unbearable for enterprises, while short-term funds are being choked off,” he said. Under the central bank’s regulation, the cap of 12% is strictly applied to short-term loans. “Such a mechanism on interest rates has created a hindrance to enterprises wanting to access bank loans,” he said. Manh commented that high rates have forced many manufacturing enterprises to put their production projects on hold, while many others cannot boost their acquisition of machinery and equipment to modernize technology. That will result in blunt competitiveness on the global market, he said. Figures from the central bank’s HCMC branch also prove that enterprises are shunning banks. In the first quarter of the year, credits disbursed by banks in the city grew a mere 0.37%, showing reluctance on the part of enterprises to take out loans. Credits in HCMC usually account for one-third of the country’s total amount. Huynh Song Hao, deputy director of Vietcombank HCMC, explained that corporate borrowers dared not take out loans as high interest rates would affect their business efficiency. Several banks have advised their clients to take out loans in the US dollar to enjoy a lower interest rate despite the risk relating to the foreign exchange rate. Dollar loans carry an annual lending rate of 6% to 7%. In fact, as a breakdown in the first-quarter credit growth in the city, loans in the greenback rose 7.2% against the previous quarter, while loans in Vietnam dong fell by 1.81%.