Borrowing costs in Vietnam remain too high despite very low inflation: businesses

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A bank employee (R) counts Vietnamese dong banknotes at a bank in the northern province of Vinh Phuc. Photo: Reuters A bank employee (R) counts Vietnamese dong banknotes at a bank in the northern province of Vinh Phuc. Photo: Reuters

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High borrowing costs have eroded profitability of many companies in Vietnam this year, a business group said, calling for a rate cut and better access to loans. 
The Vietnam Chamber of Commerce and Industry said at a meeting in Hanoi on Tuesday that 60 percent of local companies are not making profits and "a slight cut" in interest rates is necessary. 
Considering that Vietnam's inflation rate was less than 1 percent in the January-August period, and will be unlikely to exceed 2 percent for the rest of the year, the current interest rates are quite high now, VCCI Chairman Vu Tien Loc said, as cited by news website VnExpress.
Loc also asked the State Bank of Vietnam to increase credit limits at several banks, as many have already stopped offering business loans despite having ample funds. 
Up to 30 percent of small and medium enterprises in Vietnam are unable to access credit, and around 30 percent find it difficult to take out loans, VCCI reported.
Vietnam's banks currently set interest rates at 9-11 percent a year for mid and long-term loans, and 7-8 percent a year for short-term borrowings, according to statistics from the central bank.
Vo Tri Thanh, deputy chief of the Central Institute for Economic Management, did not think Vietnam should cut interest rates in the next few months. 
He was quoted as saying that, as the government has been struggling to sell bonds, a rate cut will only make it harder to attract debt investors. 
Vietnam wants to raise VND230 trillion (US$10 billion) from bond sales this year. It has reached less than half of the annual target. 
Nguyen Thi Hong, deputy governor of the state bank, said Vietnam should not let down its guard against inflation.
However, she said the credit limit of each bank will be increased in accordance with its financial conditions and lending capacity.
Outstanding loans have grown 10 percent so far this year. The credit growth target for the whole year is 13-15 percent.
Deposit rates
Many banks have slightly raised interest rates on long-term deposits over the past week, VnExpress reported.
Sacombank, for instance, increased its rates on 12-24 month deposits by 10-20 basis points to 7.55 percent a year last week. That was the bank's third adjustment since August.
Other banks have also made similar moves. 
Speaking to VnExpress, an unnamed senior manager at Sacombank said it wants to attract more money to meet to an increasing demand for long-term loans. 
Economist Dinh The Hien said that the growing demand for loans mainly came from real estate companies, considering that the property market is warming up.
If the government lets deposit rates to keep getting higher, borrowing costs will surge, affecting the manufacturing sector and economic growth in the end, he warned. 

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