High interest rate hurting businesses: expert

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Vietnam's real interest rates are too high, making it difficult to do business in the country, a government advisor says.

The real interest rate, or the difference between the nominal interest rate and the inflation rate, is now around 3-4 percent a year, said Le Xuan Nghia, vice chairman of the National Financial Supervisory Commission.

While other countries keep their rates low, borrowing costs in Vietnam are still too high at 14-15 percent a year, Nghia said. Local companies have difficulties with these rates, he added.

Nghia said the return on assets in the first six months fell across various sectors. The materials sector, for instance, recorded a 6.2 percent ratio, down from 7-8 percent the same time last year. Technology companies had a ratio of 6.37 percent, compared to 9.95 percent last year.

High real interest rates can affect the economy negatively. Other countries in the region including India and South Korea try to maintain a below-zero real interest rate.

The government in May had asked the State Bank of Vietnam to lower deposit rates to 10 percent and cut borrowing costs to 12 percent to spur economic growth.

The central bank said on Friday that although banks have lowered their interest rates, the rates are still higher than the government targets. This is because it was still difficult for banks to attract deposits and inflation was on the rise, the central bank said.

Many businesses told Thanh Nien they wanted to take out bank loans to do business but were discouraged by the high lending rates.

Tran Thi Thanh Tuyen, head accountant at Gia Thanh Electronics Shopping Center in Ho Chi Minh City, said her company was  paying interest of around 14 percent. At such rates, it can only apply for small loans to finance its purchases, she said.

Do Duy Thai, general director of the Pomina Steel Company, said businesses that have taken out huge loans will have problems in earning profits.

"With interest rates at 15 percent a year, business will find it hard to maintain their operations, let alone expand their business or invest in new technologies," Thai said.

In the long term this will hurt the country's competitiveness, he added.

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