Vietnam - Despite credit packages, businesses still borrowing capital at high interest rate of 20pct/yr

Although many banks announced credit packages with attractive preferential interest rates, businesses still have to borrow capital at high interest rates.

Last weekend, Bank for Investment and Development of Vietnam (BIDV) launched a promotion program to reduce the short-term lending interest rate to only 14.5-15.5% per year for four prioritized sectors namely export, small and medium-sized enterprises (SMEs), agriculture and rural development and support for damages caused by natural disasters.

Previously, many other lenders also offered credit packages to support exports and soft loans with interest rate of only from 16.5% per year and higher provided that these borrowers commit to sell foreign currency for bank and use added services of bank.

However, according to Do Ha Nam, vice chairman of the Vietnam Coffee and Cocoa Association (Vicofa), the general lending interest rate benchmark has been lowered from few months ago but the reduction was not enough to create the competitive advantages for local enterprises.

Usually, by the fourth quarter of each year, enterprises will start to purchase coffee to prepare for the next crop. But currently, it is very hard to access bank loans due to banks’ tightening credit policy, Nam said.

The owner of a coffee production and purchase firm in Dak Lak province also said that despite in the prioritized group, his firm still has to borrow capital at the interest rate of 21% per year.

Explaining for the high interest rates, a bank leader attributed the reason partially to the inter-bank market. Small banks that now want to borrow capital from large banks must have collateral and even they can borrow only 50% of the collateral.

"Many banks are borrowing interbank capital at high interest rate, the low lending interest rate on the first market (business and residential) will be hard to be impossible" the bank leader said.

Real survey shows the actual lending interest rate for common business and production activities is currently at over 20% per year at commercial joint stock banks and it is 18-20% per year at state commercial banks.

The State Bank of Vietnam (SBV)’s report recently also showed that the common lending interest rate for prioritized sectors such as export, agriculture and rural development and SMEs at 15-18% per year, other business and production sectors at 18-21% per year and it still remains high at 22-25% per year for non-production sector.

VietBiz24

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