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Lending interest rate now high, but will decrease   2010-03-15 - VietNamNet/TT

Since the State Bank of Vietnam (SBV) bank loosened the credit valve through its decision to allow negotiated interest rates for medium and long-term loans, the lending interest rate jumped to 18 percent. Economic analysts believe that the rate will decrease and become more affordable for businesses.


Central bank, economists discuss interest rate subsidies

Economist ponders negotiation-based interest rate scheme

Negotiation-based interest rates to be applied to medium and long term loans


Interest rates high, but will go down


Some commercial banks now offer interest rates of 12-14 percent, while joint-stock banks list 15-17 percent and a few have pushed their rate up to 18 percent. The banks admit that 17-18 percent interest rates are not acceptable to enterprises.


Financial experts claim that businesses should not panic, because the interest rates will go down when banks compete for clients. These analysts reason that that since capital is now profuse and banks are rushing to lend, interest rates will be forced down.


Ly Xuan Hai, General Director of Asia Commercial Bank (ACB) said that ACB now has 30 trillion dong in excess and that ACB will lend at 15-16.5 percent per annum for medium and long-term loans (7-10 years). Hai explained that the 15-16.5 percent per annum interest rate is still acceptable to their clients. At Sacombank, loyal clients can enjoy rates of 15 percent per annum, while the average rate is 17 percent per annum.


Some commercial banks complain that they must lend at high interest rates because of the high cost of capital. They must mobilize capital at 12 percent per annum and pay other expenses at three percent per annum, so a 17-18 percent interest rate is reasonable.


Slowed expansion


State-owned banks always have the advantage of mobilizing capital from many sources and at low costs.  They then compete with joint-stock banks to lure borrowers. A deputy director of VietinBank in HCM City noted that their floor lending interest rate is 14.5 percent per annum.


A senior executive of Vietcombank also acknowledged that they have plenty of capital and need to promote lending. The bank grants loans at 14 percent only to big businesses and offers a rate of 15 percent to smaller ones.


Analysts warn that it is very difficult to locate borrowers right now. Tran Quang Truong, Deputy General Director of Tanimex, maintained that businesses will find it hard to expand now because of overly-high investment costs.


“Several years ago, we spent only 1.5 million dong for every square meter of work space, while now it has doubles due to construction price increases,” he complained. “The high interest rate has added to our difficulties.”


Cap Sy Kiem, Chair of the Small and Medium Enterprises Association, also observed that businesses are hesitant to expand. Therefore, medium and long-term loans will account for a small proportion in total bank lending.


Financial analysts note that the new ceiling interest rate of 18 percent is bearable only by businesses with profit margins of 25 percent and higher.

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