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High rates, collateral terms block bank lending in Vietnam
Publication Date : 19-03-2013
The Vietnam central bank is battling with a paradox: banks cannot lend the billions of dong they have in cash while businesses are unable to borrow due to high interest rates and difficult collateral conditions.
According to the State Bank of Vietnam (SBV)'s Ho Chi Minh City branch, the money that banks in the city mobilised in the first two months of the year increased by 2.49 per cent while their lending was only up by 0.22 per cent.
Consequently, many banks are sitting on piles of cash.
Truong Van Phuoc, general director of the Export-Import Joint Stock Commercial Bank (Eximbank), said many businesses had not been able to expand production or sell their products, so they did not want to borrow from banks now.
Imports in the last two months were modest – at just US$17.3 billion – reflecting the fact that companies' demand for raw materials and equipment as well as consumer products was very low, he said.
To step up lending, banks have cut interest rates on short-term loans to be injected into certain priority sectors to 9-12 per cent. Rates on loans to other sectors have been slashed to 11-15 per cent.
The Asia Commercial Bank has, for instance, cut average lending rates to 11.5 per cent.
The Ban Viet Joint Stock Commercial Bank has announced mortgages at 10 per cent for the first three months of the contract.
Yet banks find it difficult to attract new borrowers.
A top executive at a commercial bank, who declined to be named, said many banks are ready to lend to companies, but the latter want to get long-term loans at low interest rates, but this was not possible.
Businesses complain about the high interest rates and tough lending conditions.
Nguyen Tuyet Mai, deputy director of Truong Thinh Company based in Vinh Loc Industrial Park, said: "Our company specialises in production of handicraft products for exports. Recently, our business has met many difficulties caused by importing countries due to the global economic downturn, so we lack funds to maintain production.
"We now need money to buy materials and equipment to maintain production and improve quality.
"However, the interest rate at some banks are still rather high, about 14 per cent.
"In addition, most banks require assets for collateral while small- and medium-sized companies like us only have factories and equipment, which are not acceptable as mortgage."
Nguyen Dang Hien, general director of Quang Minh Production and Trading Company in Binh Chanh District, said the SBV has made efforts to reduce lending rates, but they still remain too high to promote investment in production.
Expanding production often requires large amounts of money, so loans at high interest rates would deter companies, particularly in the current difficult economic situation, he added.
The SBV's branch in Ho Chi Minh City has cooperated with the Ho Chi Minh City Export Processing Zone Authority to hold several meetings between banks and companies.
Speaking at one such event, Nguyen Hoang Minh, deputy director of the SBV's city branch, said credit growth at local export processing zones and industrial parks remained very low at around 5 per cent.
This year the banking sector would implement policies to give firms easier access to bank loans, he said, adjusting interest rates and restructuring repayment periods to reduce enterprises'costs as well as bad debts.
Banks would also give priority to the five sectors the government and the city People's Committee have in mind, he said, and create relationships with businesses in rural districts, he said.
Minh added that the SBV would allow banks to lend to enterprises that can use their cash flows as collateral.