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Commercial banks still hesitant to reduce interest rates for old debts   2012-07-13 - VietNamNet

No one can say for sure that commercial banks would accept the loan interest rate of 15 percent per annum to be applied for the old debts, even though this is the instruction given by the State Bank.


The central bank has instructed commercial banks to apply the interest rates of no more than 15 percent per annum to the loans, which were signed before between banks and clients at high interest rates. The interest rate reduction must be completed prior to July 15.

Waiting in doubt

The decision has been made by the central bank in an effort to rescue Vietnamese businesses, which have got exhausted because of overly high interest rates and big inventories. However, businesses still have doubts about the feasibility of the decision.

A businessman said commercial banks would not accept to lower interest rates unconditionally. Meanwhile, not all businesses can satisfy the requirements set by the banks in order to be able to enjoy the low interest rates.

There is an immutable principle that banks have to follow that they would not accept to ease the interest rates of the loans provided before to the enterprises which have overdue debts, or have “problematic” mortgaged assets.

In order to reduce the old loans’ interest rates to below 15 percent per annum, banks would have to cut down their expenses (operation costs, capital costs) and increase the income from non-credit activities.

Besides, there is another important reason which may make the interest rate reduction impossible. However, no bank would dare to complain about this. Commercial banks lent at high interest rates in the past, because they had to mobilize capital at high costs. However, they have been forced to slash the interest rates for the previous loans, which means that they would incur loss because they bought high and now sell cheap. Who would compensate their losses?

Nguyen Viet Hai, Director of a Construction Company in Hanoi said that he has contacted some commercial banks to ask about the interest rate reductions right after the central bank’s decision was released, but he has been told to wait.

In fact, Hai does not believe that his old debts can enjoy the low interest rates of less than 15 percent, simply because he has to pay 18.5 percent for the new loans.

Nevertheless, the central bank’s decision has been applauded by a modest number of businesses.

Trinh Ngoc Son, President and General Director of Nghe An Trade Joint Stock Company, said the lower interest rates would certainly help businesses reduce their production costs and make more competitive products.

Son has his reasons to keep optimistic about the effects of the decision. His company usually borrows short term loans and it usually pays debts on schedule. Therefore, he believes that he would be able to enjoy the low interest rates.

Regarding the complaints by some businesses that the new interest rate would still be inaccessible for them, Son said the businesses would get indirect benefits. Once a business can enjoy low interest rates, it would be able to make products at lower production costs, thus benefiting the satellite companies and their partners as well.

Interest rate reductions will not help much

Both bankers and the business circle think that interest rate is no more the biggest problem for enterprises. A lot of banks are ready to provide loans at low interest rates, but businesses dare not borrow money, unless they can be sure that they can sell products.

Meanwhile, Bui Kien Thanh, a well known economist, has commented though this is a good idea to slash interest rates for the old debts, everything would still depend on commercial banks.

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