Prime Minister Nguyen Tan Dung has ordered the central bank to cut interest rates to improve credit flows and reduce business closures.
As of March 31 credit growth for the year was a mere 0.01 percent, according to the State Bank of Vietnam.
Dung, speaking at a meeting Tuesday, called the growth insignificant, saying it was barely "above the ground."
He instructed the central bank to extend loan terms and cut rates, saying that while most new loans enjoy rates of around 10 percent or less, old ones are still charged 15-19 percent.
“It is still very difficult for businesses to get bank loans. I suggest the governor should look into it since the business community is waiting.”
Nguyen Hoang Minh, deputy director of the central bank’s Ho Chi Minh City office, said that interest rates of 18-20 percent were cut to 15 percent in 2012 and 13 percent last year, and that 90 percent of loans are charged less than 13 percent, and rest between 13 and 15 percent.
But businesses dismissed the claim saying rates on old loans remain two to three times higher than on new ones.
A report by the Ministry of Investment and Planning showed that 16,750 businesses shut down or suspended operations in the first quarter, a 9.6 percent rise year-on-year.
The director of a mining firm in the northern province of Ninh Binh, identified only as N.T.D., said his company is struggling with a loan of more than VND20 billion it got in 2011 at 20 percent interest.
“They have been talking about cutting rates the whole time but the reduction has not been significant.
"That is why we have not been operating much since any money we got we used to pay the interest."
Pham Thi Loan, chairwoman of Hanoi-based Viet A Group Holdings Co, which has businesses ranging from machinery manufacturing to real estate, said she would stop asking about loans on easier terms.
“I tried until I lost my voice but did not get anything.
“[Banks] say one thing but do another. Businesses cannot get loans.”
Loan has considered the option of bankruptcy.
To Hoai Nam, vice chairman of the Vietnam Association of Small and Medium Enterprises, said SMEs account for 90 percent of the country’s businesses and they have been “starved” of funds.
“They are small, and so will just borrow a little, but having to pay high interest rates makes it very difficult for them.”
Insiders said the high interest rates have been a nightmare for businesses.
PetroVietnam Construction JSC, a subsidiary of state giant PetroVietnam, said it had to pay VND500 billion (US$23.72 million) in interest last year and became the biggest loser among listed firms with losses of around VND2.63 trillion ($124.93 million).
The company owes VND3.5 trillion in long- and short- term loans, including overdue ones that carry penal rates of 7.35-8.25 percent.
Economists said now that the government has called for rate cuts, acting on it depends on banks.
Bui Kien Thanh, a banking analyst, said cutting interest rates and extending loan terms as suggested by the PM is a right move given the circumstances and “within the capability of the central bank.”
“The central bank should consider this a necessary mission for an economy that is showing signs of decline.”
He accused the central bank of failing to carry out its mission as mandated by the law, saying the governor has the authority to fix interest rates on banks' loans that are appropriate for the economic situation.
He said the central bank has also failed to cut its own rates on loans to commercial banks, unlike western central banks which did so during the recent crisis, since only then can the banks reduce their interest rates to below 5 percent.
“Doing anything to help businesses survive is what is needed at this time."