Bankers Say Interest Rates Won’t Decrease By Year End

06-Aug-2011 Intellasia | Vietnamnet | 7:01 AM Print This Post

The lending interest rates have been staying firm at 21-22 percent per annum, while bankers say that they have no reason to ease interest rates towards the end of the year.

Deputy general director of a big bank who asked to be anonymous, said that he well understands that businesses now have to bear overly high interest rates, but his bank will not slash the interest rates in the immediate time, because the bank still has to pay high for deposits, at 17-18 percent per annum. Meanwhile, commercial banks cannot push up lending, because the “room” for credit growth rate is 16 percent only.

Therefore, the banker say, the lending interest rates must not be lower than 20-21 percent.

The liquidity has been forecast to become weak towards the end of the year, which has forced commercial banks to take “defensive measures”. Therefore, banks not only will not reduce the lending interest rates, but also will have to reduce the credit limits.

Another banker has revealed that his bank is only providing loans in dribs and drabs, even to loyal clients, because of the worries about liquidity. “We do not want to set up high interest rates, but we have to,” he said.

Secretary general of the Vietnam Banking Association, Duong Thu Huong said that currently, bank loans account for 70-80 percent of businesses’ capital. Therefore, if the lending interest rates go down, enterprises would be able to have more competitive sale prices. However, at this moment, the interest rates could be lowered by 0.5 percent only.

“The interest rates cannot go down significantly because of the high inflation,” Huong said.

Regarding the suggested solution under which the State Bank of Vietnam pumps money through commercial banks to increase the capital supply, thus allowing to ease interest rates to rescue the production, Dr Tran Hoang Ngan, a member of the National Advisory Council for Monetary Policies, said that the measure cannot be implemented right now, because the top priority goal for Vietnam at this moment is curbing inflation.

“In order to solve the interest rate problem, it is necessary to deal with the outstanding loans now lying in real estate loans,” he said. “It is necessary to liberalise the real estate debts by selling projects. If so, the money would flow to the banking system which will have capital to provide to the national economy”.

Also according to Ngan, it is necessary to clarify the way and the figures the general Statistical Office (GSO) uses to calculate the inflation. If the GSO collects figures from small markets, where the prices are high because of the high transportation fees, the CPI would be abnormally high, thus causing worries among people.

No way out for businesses?

Tran Van Quang, general director of the Dong Anh Electric Equipment Manufacturing Company, said that the company’s plan to obtain 50 billion dong in profits in 2011 has failed completely.

“In the context of the low demand, products are unsalable. The lending interest rates are overly high, and the more we produce, the bigger loss we will incur,” Quang said.

“We have just borrowed 70 percent of the credit limits. However, as the interest rates are too high, we do not want to borrow more and step up production,” he added.

Quang’s enterprise now has to pay 60 billion dong a year in interests, which is equal to the pay to the company’s 900 workers within a year.

Quang said regional enterprises have more competitive edges than Vietnamese, because they can borrow money at reasonable interest rates of 5-6 percent per annum, while the exchange rates always keep stable. As a result, the production costs in Vietnam are usually higher by 30 percent than that in other regional countries.

According to the Small and Medium Enterprises’ Association, 20 percent of businesses are now on the verge of bankruptcy.


Category: Finance

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