Domestic banks are keen to increase lending to foreign firms, the leading performers in the economy, but are unable to match the low interest rates that their foreign competitors can offer.
Le Hoang Son, director of state-owned lender VietinBank's branch in Dong Nai Province, told Saigon Times newspaper that his bank cannot offer low enough interest rates to attract foreign borrowers due to profit concerns.
The bank offers dollar loans, which foreign firms prefer over dong loans, at 3-3.5 percent.
Hoang Van Thanh, chief account of Japanese-owned copper rod producer CFT, said he saw no reason to borrow from local banks since his firm borrowed dollars from a Japanese bank at just 1 percent.
A representative of beverage firm Dona Newtower, a Vietnam-Hong Kong joint venture, said the lowest rate local banks offer on dollar loans is 3-3.5 percent.
But even this comes with conditions like firms having to use the banks' numerous services, she said. Besides the banks cannot guarantee they would have enough dollars to sell to her firm to repay its debt, she said.
Her company borrowed from HSBC at a very low rate compared to local banks' rates, she said, but did not divulge the rate.
"As has been said over and over again, local banks are unable to compete with their foreign rivals in terms of interest rates, the key factor for businesses when deciding to borrow."
Foreign companies accounted for over 60 percent of the country's exports of US$96.3 billion in the first nine months, according to official data.
An industry insider said all banks are keen to lend to foreign companies, particularly given the slow credit growth, weak domestic demand, and the high bad debt levels.
Credit growth as of August was 5.4 percent, less than half the full year's target.
By the end of last year, 33 out of the 39 local banks operational then and which had published their results -- reported that a mere 2 percent of their total loans had been to the foreign sector, according to global consultant KPMG.
The State Bank of Vietnam caps interest rates on dollar deposits at 0.25 percent and 1.25 percent for institutions and individuals respectively.
Domestic banks, while struggling to lend to large and medium-sized foreign firms, are reluctant to lend to small ones.
They have become cautious after the bosses of more than 500 foreign companies fled the country because they ran up debts they could not repay.
Son of VietinBank said his bank too had lent to one of the companies, adding it now targets those with a minimum capital of $10 million and would take extra care in other cases.