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Lower interest rates aren’t making businesses happy   2008-10-09 - Dat Viet

The new decision by the State Bank of Vietnam on raising the interest rates on compulsory reserves, which was praised as an active move to help ease the burden on banks and businesses, has not made businesses as happy as expected.


The decision has helped commercial banks cut lending interest rates a little. However, businesses say that the rate of 19-20.5% per annum, a decrease of 0.5-1% per annum, remains unaffordable. They said that in order to pay the interest rates, they have to get profit of over 30%.


“30% profit is an ideal figure that every business wants. However, this proves to be an impossible mission in the current conditions,” said Nguyen Hoang Luu, Deputy Chairman of the Vietnam Association of Small- and Medium-size Enterprises.


He went on to say that the demand of businesses for capital is very big. It is estimated that 50-60% of businesses have great needs for credit as they have been relying on loans, from banks and other sources.


According to Dr of Economics Le Dang Doanh, the lack of capital has made 10% of enterprises almost perish while another 10% has stopped operating or died already.


He believes that the current difficulties will last from now to the end of the year at least.


While businesses have been urging banks to slash lending interest rates, banks say they cannot do that as the government has been tightening monetary policies to curb inflation.


Luu thinks that the situation will not improve until mid 2009, when the high inflation can curbed. At that time, with a more flexible credit policy, businesses will be able to access bank loans more easily.


Doanh said that businesses need support from the government. “A fund which provides loans at preferential interest rates would be useful; it could help reduce the number of enterprises on the verge of death.


“If this is not implemented, or implemented slowly, the national economy might have to pay a heavy price if many enterprises go bankrupt,” he warned.

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