Vietnam interest rates hold despite PM's call for cuts

By Thanh Xuan - Mai Phuong, Thanh Nien News

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PHOTO BY DIEP DUC MINH
Despite Prime Minister Nguyen Tan Dung's order for the central bank to cut interest rates early this month, banks are still asking borrowers to wait.
Vo Truong Thanh, general director of the leading wood processing corporation Truong Thanh, said he's filed requests with several lenders asking for rate cuts only to receive the same reply: wait.
Thanh said his company has been charged an annual rate of 12 percent since the third quarter of last year, and he expected the PM' s order to provide some relief.
“Banks are quick to push [rates] up but cuts always take a long time,” he said.
He said a reduction of a single percentage point would save him VND1 billion (US$47,400) in interest per month.
Cao Tien Vi, general director of Saigon Paper Corporation, said that reduction would mean more than VND20 billion a year in savings for his firm.
The manager of one small Ho Chi Minh City garment firm let out a series of sighs when asked about interest rates.
The company continues to pay 14 percent a year on its loans and he remained doubtful he'd receive the same privileges extended to large firms.
He said most medium and long-term loans carry an interest rate 1-3 percentage points higher than short-term ones. The policy does not encourage businesses to invest in technology or infrastructure improvements, he said.
To Hoai Nam, vice chairman of the Vietnam Association of Small and Medium Enterprises, told Thanh Nien that SMEs account for 90 percent of the country’s businesses and they have been “starved” of funds.
Official statistics listed 16,745 business closures and suspensions in the first quarter this year, up 9.6 percent year on year.
A small number of businesses enjoying good credit records and close connections with banks have had their rates reduced, but only by a token amount.
Le Huu Nghia, director of Le Thanh Construction and Commerce Ltd in Ho Chi Minh City, said the firm's VND100 billion loan contract was just adjusted from 14 percent to 13.5 percent.
“The cut was insignificant and the rate is still pretty high compared to the deposit rates of 6-7 percent a year.”
Nghia said if the rate falls to 12 percent a year, the company’s interest obligations will fall by VND1.5 billion.
Do Duy Thai, vice chairman of Vietnam Steel Association, is looking beyond surviving bankruptcy.
He said interest rate larger than 10 percent a year on long-term loans leave local businesses unable to compete with imports and FDI-funded rivals.
The director of one commercial bank, who asked to speak anonymously, said banks have been reluctant to cut rates since most borrowers fail to present a viable plan for clearing their inventories.
The bad debt burden has also caused banks to remain downbeat about lending, the bank leader said adding that they aren't pursuing borrowers.

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