Photo credit: Saigon Times
Foreign loans among businesses in Ho Chi Minh City have been increasing as local interest rates, despite several cuts recently, remain high, according to a news report.
At the end of last year, HCMC businesses’ overseas borrowings hit US$3.65 billion, up 9.7 percent from 2013, news website Saigon Times quoted the State Bank of Vietnam’s Ho Chi Minh City office as saying last week.
Nguyen Hoang Minh, deputy director of the office, said that foreign loans were cheaper with interest rates at just 1-2 percent a year, while local rates on foreign-currency loans were 4-5 percent. That's why businesses would take out loans from overseas if they could, Minh said.
However, he said, very few companies can borrow from foreign banks because there are not many consultants and brokers who are specialized in helping businesses find overseas lenders.
Most of the time, only big companies with name recognition can do so, he added.
According to the central bank, 750 businesses in HCMC, 66 percent of which are foreign-invested, borrowed a total of US$6.25 billion from overseas sources as of the end of 2014.
Most of FDI businesses borrowed money via their parent companies, according to Minh.
For Vietnamese companies, foreign loans could be in the form of deferred payments for machinery they have bought from overseas, or capital contributions from foreign partners, he said.
Some companies borrowed money from their acquaintances, or took out loans with the government’s guarantee, the official added.
An unnamed senior official with SBV said in the website that they are closely watching businesses’ foreign loans that are not guaranteed by the government.
He said they will have “suitable” measures to keep private non-guaranteed credits within control.
The central bank will collaborate with the Ministry of Finance and other relevant agencies in setting a new limit for foreign borrowings, he added.
According to the unnamed official, although it is a company's business to borrow money from overseas, when external debt increases, public debt will eventually be affected.
Vietnam’s public debt is expected to be 64 percent of its gross domestic product this year and rise to 64.9 percent next year before gradually decreasing to 60.2 percent by 2020.