Latest rate cut fails to perk up businesses

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Photo courtesy of Saigon Tiep Thi

The latest cut to deposit rates on March 26 will allow them to lower their lending rates further, but banks say they are no longer to blame for a sluggish economy.

Businesses are struggling because of low consumption and lack the confidence to take loans, they say.

The maximum deposit rate was cut 8 to 7.5 percent by a central bank order after official statistics showed the consumer price index in March down by 0.2 percent from the previous month.

Representatives of leading banks said analysts have been talking on the media about the deposit cut days before it took effect, but they have not experienced major withdrawals, maybe because other options like gold, property, foreign exchange and stocks are not very attractive right now.

Nguyen Phuoc Thanh, general director of Vietnam's third biggest lender, Vietcombank, told Thoi Bao Kinh Te Saigon Online that he was prepared for a wave of withdrawals, but there was nothing significant.

Some bankers say the only change so far is that people have extended their deposit terms to enjoy higher rates of 10 or 11 percent. However, they also say that they do not see a "smooth way out" for the money because businesses are confident in their own abilities to do well in the current economic climate.

Cautious borrowers

The stated aim of the latest reduction in deposit rates, the first of the year after six similar moves in 2012 including one in late December, is to stimulate an economy troubled by high levels of bad debt that had stifled both lending and borrowing.

The bad debt ratio has fallen to 6 percent (of total loans) from 8.82 percent last September, according to the government.

However, borrowers have been cautious about doing business in a sluggish economy.

An unnamed board member of a Hanoi-based bank told Saigon Tiep Thi interest rates have been going down for several months now, and the new reductions to key rates, including the discount and refinance rates also, will make loans even cheaper.

"It will basically boost borrowing, but the impact might be limited as businesses have to think about what they will borrow money for, what they will buy, or sell, or store, while purchasing power remains weak," he said.

He said his bank has been knocking the doors of many companies and offering credit, but they did not seem to be keen on making any deals.

"The market now belongs to the borrowers. Banks are completely opening their doors. But this time it is the businesses who are considering."

Still high

A March 25 report on the VnEconomy website quoted an unnamed bank leader as saying many businesses with old loans are still stuck with annual interest rates of 15-18 percent, despite the several cuts that have come into effect recently, as also a central bank directive last year that enjoined lenders to restructure old loans with a maximum lending rate of 15 percent. The most commonly cited rationale by banks is that they'd had to pay high deposit rates at the time loans were given and it would take some time before they can restructure those loans.

Truong Van Phuoc, general director of private lender Eximbank, also said that cheap loans have been and will continue to be a trend as "there are more lenders than those who can afford to borrow."

Eximbank is offering many loans at 8 or 9 percent a year, while the popular rate in the market is 13 percent compared to 17.5 percent at the end of December.

"We've made a big sacrifice in profits. But thanks to that, for nearly a month now our bank has been able to make loans worth tens of billions of dong," Phuoc said in the Saigon Tiep Thi report.

Leading lender Asian Commercial Bank (ACB) also launched a "golden" promotion recently, offering annual rates of 10.99 percent for production loans and 11.99 percent for consumer loans.

Oceanbank has since early this month cut lending rates to 11 percent a year for small and medium enterprises, 13.5 percent for household businesses and 10 percent for rice trading businesses.

Cao Sy Kiem, former central bank governor and current chairman of the Vietnam Association and Small and Medium Enterprises, confirmed that many companies have been offered cheap loans.

But the weak consumption has discouraged them from taking the offers, Kiem said.

Figures from the General Statistics Office show that as of March 15, 15,200 businesses have dissolved or suspended operations since the beginning of this year.

The industrial production index rose by 4.95 percent over the period, the smallest quarterly growth in many years, while inventory values climbed to between 70 and 90 percent of output.

"As they cannot sell, businesses will have to carry more debt if they borrow more," Kiem said.

Given the state of the economy, some big lenders like Vietcombank are also unwilling to loosen their lending on a large scale.

Thanh said his bank is offering loans for as cheap as 8 percent per year, but only to select businesses.

He said cheaper loans alone will not brighten the big picture for businesses. "They will be healthier with policies that cut taxes and simplify red tape."

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