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Businesses prefer loans with higher interest rates, why?   2009-03-03 - VietNamNet/TT

A lot of export companies have decided to take out normal loans with high interest rates instead of getting loans under the 4% interest rate subsidy programme, because with the soft loans, they have to promise to sell dollars to banks as soon as they earn them.


The problem lies in the fact that businesses all believe that the dollar will keep rising in price and they want to keep dollars instead of selling them to banks. Therefore, instead of borrowing money from banks at low interest rates of 1% on average and committing to sell dollars to banks, many enterprises would rather borrow money at high interest rates and keep dollars.


In fact, commercial banks are offering businesses different choices. Those enterprises who do not commit to sell dollars to banks will have to pay higher interest rates of up to 4% per annum, or 3% higher than the interest rates applied to the clients who commit to sell dollars. Though businesses have to pay higher interest rates, they think that keeping dollars for 3-6 months more will bring them profit.


An official from the Transaction Centre No 2 under Vietinbank confirmed that many big export companies which have earnings in foreign currencies want to keep dollars to sell later when prices increase.


The Governor of the State Bank of Vietnam has affirmed that the government does not intend to adjust the exchange rate, and that the central bank is able to control the market’s supply and demand.


According to Bui Thi My Hanh, Director of Can Tho branch of Eximbank, businesses which want to be secure about the efficiency of loans would prefer low cost (1%) loans, while those which expect the exchange rate to increase would choose the loans with the interest rates of over 4%.


However, analysts have warned that borrowing at a high interest rate is risky as exchange rate fluctuations are unpredictable.


Like businesses, many individual investors are still wavering between keeping VND or dollars. Those who keep dollars accept low interest rates for US$ deposits but they hope that they will get profit when the dollar price increases.


However, analysts have pointed out that in general, it is less profitable to keep dollars than VND.


The expectations about the dollar price increase once made businesses suffer. In 2008, businesses had two choices: either borrow dollars from banks to make payments for imports or purchase dollars on the black market at prices higher by VND1,000-2,000/US$1 to make payments. A lot of businesses chose the first option and they suffered from the decision as the foreign currency market returned to normal.

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