Hard Hit by Sky-High Interest Rates

Presently, accessing bank loans is a very hard job for borrowers, when the rate has climbed to 21-23 percent per annum. Many companies do not dare to apply for new loans while existing borrowers are wrestling with the sky-high rate.

 

Although the State Bank of Vietnam (SBV) has put a cap on the deposit interest rate at 14 percent, the actual rate has stayed at some 17 percent per annum for months. Mr Le Van Tam, Chairman of the Lam Son Sugar Association, said: The volume of stockpiled sugar has exceeded the demand from 330,000 - 350,000 tonnes. As sugar is unmarketable, sugar producers cannot use it as a security to borrow money from banks to continue with the next crop.

 

Mr Luong Van Tu, President of the Vietnam Coffee and Cocoa Association (Vicofa), said: “Coffee companies planned to purchase 200,000 tonnes of coffee within three months to store for higher prices but they could buy only 70,000 tonnes. When the stockpiling plan commenced, coffee prices were relatively low but they did not have enough money to increase the stock while bank loans were out of reach because of high rates. But at that time foreign companies with powerful financial capacity picked up a very large volume. At present, when coffee prices have accelerated to new peaks, only foreigners enjoyed price differentials, not coffee growers or Vietnamese companies.”

 

Mr Nguyen Hai Lam, Deputy Director of Hai Duong province-based Serafood Agricultural Products Company, said: “Many agricultural products sharply increased in prices since the start of this year, including cashew nuts, coffee and cereals, with some kinds soaring by 50 percent, but our company was unable to purchase raw materials at lower prices because of capital shortage, thus missing many contracts.”

 

Many companies complained that they would have to suspend production if they could not borrow bank loans. This will cause thousands of lay-offs. Unfortunately, with current borrowing costs, the more money they borrow, the more losses they suffer. Mr Lam said, with interest rate of more than 20 percent per annum for banks, plus rising costs caused by higher prices of gasoline, electricity and raw materials, outputs fail to offset input costs.

 

Passively living with capital shortage, Mr Nguyen Van Thanh, Director of Minh Thanh Engineering Joint Stock Company in Hung Yen province, said: “Nearly two years ago, our company signed credit agreements with banks on the basis of flexible interest rates, with the rate then hovering at only 12 percent. However, in the past year, our lenders have informed us of rate hikes every month. At present, the rate has climbed to 20 percent, bringing heavy pressure on our operations. We are confronting huge difficulties in settling interest rates, let alone the principal.”

 

Mr Nguyen Xuan Phuc, Minister and Chairman of Government Office, said the Government’s Resolution 11 on macroeconomic stabilisation and inflation control, issues related to interest rates facing companies are also taken into account. However, the monetary policy that the Resolution is pursuing cannot generate immediate effect, but we will see it by the end of this year or early next year.

 

But Mr Le Xuan Nghia, Vice Chairman of the National Financial Oversight Commission, said: “Given the current excessively high interest rates, companies should limit their investments and resize production. They should endeavour to make the highest result possible from least investments and try to approach as close as possible to the breakeven point to avert risks. If they invest all capital at the present time, they may be prone to dramatic losses or even bankruptcy before the advent of the ‘bright tomorrow’. The best time for investment is possibly in early 2012 when the economy is more stable and access to capital may be easier.

 

The Government must put a ceiling on interest rates, not to run after it to pull it back as it has done. Mr Tran Dinh Thien, Director of the Central Institute of Economic Research (CIEM), said: “High interest rates will quickly attract investment capital to banks, inflation will slow down accordingly.”

 

Expressing worries about the risk of an interest rate bubble, Mr Le Dang Doanh, former Director of Vietnam Economics Institute, analysed: “At present, credit sources flow not to borrowers in need, but to the speculative market. Without business supporting measures, excessively high interest rates will force companies to incur losses, speculative markets to slump, and banks will face more difficulties because of roaring bad debts.”