Vietnam businesses face brunt of costly loans, low demand

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Nearly 25,000 businesses closed down in the first half and the trend is unlikely to abate any time soon given the low demand and expensive bank credit.

Many business executives said though the central bank and then various lenders announced cuts in lending rates, they remain high.

Le Van Thanh, director of a Hanoi-based company, said he pays 13 percent despite the announcements of 9-10 percent rates.

"Cheap loans are just a PR thing."

The director of a rock excavation company in the northern province of Ninh Binh, only identified as Dat, said his company borrows at 14 percent since construction is not in the preferential list unlike agriculture and rural businesses and exports.

"I think that rate is too high and businesses [cannot] afford it."

Businesses said banks have also devalued properties and lend them less for the same collateral.

Vuong Vinh Hiep, general director of a company in the central province of Khanh Hoa, said he does not want to pledge too many assets to get the loan, and so has called off expansion plans.

A survey by leading lender Vietcombank showed declining credit growth at major banks, with most lending being to consumers rather than businesses.

The survey said banks are unlikely to provide cheap loans to businesses because of the bad debt situation.

Statistics indicate consumption too is declining.

An HSBC survey in June showed the purchasing managers' index, which measures the health of the manufacturing sector, fell to 46.4 from 48.8 in May, its third-lowest reading since being created in April 2011.

Growth in retail revenues in the first half dropped to 11.9 percent from 20 percent for full-year 2012, according to the General Statistics Office.

Economists said the problem needs better government support, such as guaranteeing loans for businesses.

Pham Chi Lan, a former government advisor, said the government has launched several "important" support measures such as tax breaks, "but they have been done too slowly."

Little of the VND30 trillion (US$1.4 billion) package has been disbursed to low-cost home buyers and developers at 6 percent interest rate, she said.

The tardiness has put paid to many businesses' survival efforts, she said.

"The key point is we should carry out the support we announced neatly and quickly.

"We need to immediately get rid off cumbersome paperwork anywhere it comes up."

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