Small firms steered towards higher interest consumer loans

TN News

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Small companies are complaining that they are not able to access loans to do business unless they accept higher interest rates.

Nguyen Hai Son, who owns a small transport company in Hanoi, said he wanted to apply for a bank loan to buy three new cars to expand his business.

Son visited three banks and he was told that a corporate loan would only cover half of the cars' value. For a larger loan of up to 90 percent of the value, he was advised to take out consumer loans instead.

The problem is the interest rates on consumer loans are higher, at 16-18 percent a year compared to 13.5 percent on business loans. Son said his company is now stuck with either accepting high interest payments or being given much less money than needed.

Many other small companies also said they have been encouraged to get consumer loans to do business.

The government earlier this year ordered banks to bring down interest rates to make sure local businesses have enough capital. Borrowing costs are set to be cut to 12 percent and the deposit rate to 10 percent by the end of this year.

To ensure their profit targets are met, many banks have tried to boost consumer lending so that they can charge high interest rates.

Tran Xuan Quang, deputy general director of Bao Viet Bank, said banks do not have large amount of funds available for lending, so they try to choose clients who can bring them more profit.

Moreover, it would be easy for a business to meet consumer loans requirements, he said.

Economist Nguyen Duc Thanh of the Hanoi National University said small businesses are not large clients and it's hard to tell whether their owners will use the loan for consumer or business purposes. As a result, they can be treated by bank rather harshly.

According to the central bank's branch in Ho Chi Minh City, consumer loans as of the end of August accounted for 5.2 percent of total loans in the city.

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