Companies still can't borrow, despite lower interest rates

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Several commercial banks announced lending interest rate cuts, but companies complain they are being denied access to the lower rates.

Major lenders like VietinBank and Vietcombank have lowered dong lending rates for loans to businesses and manufacturers to a range of 17-19 percent. Lender SHB announced it has set aside VND4.2 trillion (US$200 million) for short-term loans also at those rates to firms that borrow to develop agricultural production.

Twelve Vietnamese banks reached an agreement last month to lower their lending interest rates to 17-19 percent, supporting a call from the central bank. In return, the

State Bank of Vietnam promised to be more flexible with banking policies and help commercial banks increase their liquidity.

Doan Trong Ly, chairman of animal feed trader Aprocimex, said his firm asked to borrow from four banks on Tuesday, but none of them agreed to lend at 19 percent.

"Now, we still have to borrow at rates of 21-22 percent," he said.

Le Ba Lich, chairman of the Vietnam Association of Animal Feed Manufacturers, said only a few big firms could access the lowered interest rates. Meanwhile, many small firms still borrow with interest rates of over 19 percent.

"A small firm is lucky just to get any loan, let alone those at low interest rates," said Lich.

Hoang Trung Dung, head of Maritime bank's Hanoi branch, said there was no special reason that businesses are unable to access lower interest rates.

"The number of companies registering to borrow now is not higher than earlier. We just carefully assess firms' profiles before deciding to lend to them to ensure that we offer the loans to the right people," he said.

But Pham Duy Hung, general director of Viet A Bank, admitted that high deposit interest rates in recent months, plus other fees, stopped banks from offering interest rates of 17-19 percent to all customers.

In the short term, the rates will be applied only to particularly beneficial or loyal customers of the bank, he said.

Hung said his bank would consider its capital mobilization ability, and customers' business and production capacity, when deciding how much to loan them. Different customers will get different rates, he said.

Another manager of a commercial bank who wished to remain anonymous said the reduction of lending interest rates could cause difficulties for banks.

Until recently most lenders had broken the annual deposit rate cap of 14 percent, offering rates of up to 19 percent for deposits. It is therefore difficult for banks to lower lending rates immediately and apply the new rates to all customers, he said.

"The interest rates of 17-19 percent can only be applied to more customers in the next one or two months when banks have dealt with all high-interest deposits," he said. "If banks stop breaking the deposit rate cap, lending rates can be cut to as low as 17 percent in the coming time."

The State Bank of Vietnam has asked commercial banks to comply with the caps on interest rates payable for dong and dollar deposits. Leaders at banks that violate the regulation will be dismissed from their duties. Banks are also expected to report interest rate violations by other lenders to the monetary authority, according to a central bank's statement.

However, it is difficult for some small banks with poor liquidity to follow the order. The central bank is inspecting some small banks suspected of breaking deposit interest rate caps.

The representative of a commercial bank has expressed worries, fearing his bank could not compete with larger ones in attracting deposits.

He said the deposits his bank received from local residents and firms between September 8 and 10 dropped by nearly VND580 billion ($27.6 million) compared to the previous three days, before the regulation on the interest rate cap was tightened. "This is the difficulty small banks have to face."

Tran Hoang Ngan of the National Advisory Council for Financial and Monetary Policies said implementing the cap could help banks lend with lower interest rates, reducing the risk of bad debts.

If the government implements tight monetary and fiscal policy, while macroeconomic development is stable, inflation could be kept under 10 percent, and lending interest rates could be back to a more reasonable 12 percent, he said.

Vietnam's inflation reached an annual rate of 23 percent last month, according to the General Statistics Office.

The Vietnam Association of Financial Investors has proposed that the Ministry of Finance and the State Bank of Vietnam lower the annual lending interest rate to 12 percent, and cut the number of commercial banks by 20 percent.

The association said that if the interest rate of 20 percent remains, macroeconomic goals, such as GDP growth, inflation, state spending reductions and forex market stabilization, could not be reached.

Deposits still most attractive

Former central bank governor Cao Sy Kiem said the deposit interest rate of 14 percent was not low.

It's attractive enough to help banks lure customers, as inflation may increase by 1 percent each month from now to the end of this year due to the government's anti-inflation measures.

Other investment channels such as stocks and property are now gloomy, and cannot bring investors big profits. Moreover, people with savings of only VND100-200 million simply don't have enough capital to invest in property effectively, he said.

Meanwhile, dollar holdings don't come with high interest rates like dong deposits, although the currency is expected to gain on the dong late this year, when the country needs more of it for overseas loan payments and imports, Kiem said. "The dollar won't increase by more than 14 percent against the dong, so I think many people still prefer making dong deposits to holding dollars."

However, local people are also holding gold, considering it a safe investment amid a turbulent world economy, he said. "Gold prices may not soar as quickly as last month, but it won't drop."

Phan Thanh Son, a senior consultant at Southeast Asia Securities Corporation, said lower lending interest rates could help firms do better business, and investment in the stock market could be raised. However, not all firms could access loans at the new rates now, so there will be no big change to the market in the coming time, he said.

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