Vietnam banks say ailing economy precludes credit, not lending rates

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Money deposited at a HDBank branch in Ho Chi Minh City

Banks have rejected complaints that loan interest rates are high, saying falling demand because of the economic situation rather than the rates has dissuaded firms from borrowing.

Tran Viet Anh, vice chairman of the Rubber Plastic Manufacturers Association, had earlier told Ho Chi Minh City authorities at a meeting on March 12 that many of his association members are reluctant to borrow from banks since interest rates are "quite high."

But then many of them are suffering from a funds shortage, and have resort to borrowing from each other or using their own funds.

The national textile and food associations too had a similar complaint to make.

Cao Tien Vi, general director of tissue paper producer Saigon Paper Corp., said most developed countries like the US and in Europe keep lending rates at 2-3 percent, while in Vietnam bank loans carry 14-15 percent interest.

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Deposit rate cut fails to translate into cheaper loans

The State Bank of Vietnam reduced the maximum deposit rate several times since last year to 8 percent in the hope of bringing down lending rates.

But the spread between deposit and lending rates remains wide and high loan rates are burdening the economy.

Given overall loans in the banking system, estimated at US$128.98 billion, have been taken at 15 percent on average, it would cost Vietnam one sixth of its gross domestic product last year in interest, Tran Du Lich, member of the National Assembly's Economic Commission, estimated.

Banks, however, argue that borrowing is down only due to the economic slump.

Outstanding loans at banks fell 0.16 percent in the first two months, while the central bank expects 12 percent credit growth this year.

Truong Van Phuoc, general director of Eximbank, said his bank has been proactively seeking corporates to offer credit at 11.5-12 percent but outstanding loans remained unchanged in the first two months.

Companies see no reason to borrow as they have yet to figure out how to cope with the economic situation, he said.

Pham Ngoc Hung, vice chairman of the Ho Chi Minh City Union of Business Association, said most companies failed to meet lending criteria.

Only large, strong companies qualify for loans, he said.

An executive from the Bank for Investment and Development of Vietnam said many banks have cut loan rates but cannot oblige struggling businesses demanding further cuts.

He said his bank has cut interest rates on existing loans to 13-15 percent, and is offering new loans at 10-13 percent.

A general director of a bank based in HCMC, who asked not to be named, said only customers with good credit rating can get preferential rates of interest at his bank since it is worried about bad debts.

Banks are lending with care in the current economic situation, he added.

To pump money into production and businesses, economist Le Xuan Nghia said the government should cut loan rates and make more efforts to decrease bad debts.

The government should also provide policy support for struggling companies to borrow from banks, he added.

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