Vietnam businesses hurting as interest rates soar

TN News

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Despite the central bank's efforts to curb inflation and stabilize foreign exchange rate, interest rates continued to rise, putting more pressure on local businesses.

Commercial banks are now offering deposit interest rates of 12-13 percent, up from 11 percent earlier this month according to a number of lenders' websites. Borrowers can now expect to pay 16-18 percent interest on loans, up from 13-14 percent just a few weeks ago.

The market moves represent a substantial policy shift. Instead of trying to boost economic expansion, Vietnam now appears intent on curbing inflationary pressures and calming the dollar exchange rate.

Le Duc Thuy, chairman of the National Financial Supervisory Commission, said the central bank has let market forces determine interest rates, instead of urging lenders to bring them down.

In the meantime, business owners are now complaining that higher lending rates will eat into profits. Some firms, avoided taking out loans despite the fact that they need large sources of capital.

Nguyen Ngoc Nghiem, general director of the Hanoi-based footwear firm Thang Long, said some firms were caught in a devastating economic trap.

Facing net profit ratios of 3-5 percent, he said, they had to turn around and pay 17-18 percent interest on their loans.

"With these interest rates, we earn no profits," Nghiem said. "We don't dare to borrow from banks. Instead, we have to seek other ways to mobilize capital."

Businesses willing to pay the high rates are still having a hard time accessing bank loans, according to Nguyen Viet Cuong, vice director of Bach Dang, a plastics firm in Hai Phong City.

Cuong has registered to borrow capital, but the bank is still considering.

Given the widespread capital difficulties, some small firms have to cut their production and revise their year-end earnings estimates. The director of a woodworking firm said some companies have had to cancel their export contracts, and have been fined because they could not borrow capital in time to purchase materials for production.

Nguyen Van Quan, vice-director of tissue producer Song Duong, said his firm, which used to get preferential treatment from commercial banks, is also having a hard time accessing bank loans.

Higher interest rates and increasing material prices have raised his firm's input costs. As a result, they're considering raising their prices.

However, higher sale prices may scare off customers, who remain cautious as inflation continues to soar.

"We can't give our customers as much leeway as we did last year," he said. "We used to allow them as much as 15 days for their orders, nowadays we can only afford to give them around ten days."

High lending rates will sort out weak businesses, according to economist Le Tham Duong of the Ho Chi Minh City Banking University. If businesses do not depend a lot on bank loans, they will survive even if the borrowing interest rate hits 20 percent, annually.

Duong noted that banks are taking out loans for as much as 20-21 percent interest. These banks are struggling to maintain liquidity, he said.

Other economists worry that if interest rates continue to rise, many small- and medium-sized firms will be pushed to the verge of bankruptcy.

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