Enterprises Still Find It Hard to Access Capital Though Lending Interest Rate Capped

State Bank of Vietnam (SBV) has decided to set ceiling for lending interest rate in accordance with the Government direction on supporting enterprises in hard time. However, it is doubtful that businesses will be able to access low interest loans.

The Circular No. 14/2012/TT-NHNN indicated that the maximum interest rate for short term in VND of credit institutions to customers with need of fund for some fields, economic sector, is equal to interest rate of deposit in VND with term of or more than one month, which is regulated by SBV, plus 3 percent/year. It means that given current deposit interest ceiling of 12 percent/year, the maximum lending interest rate is 15 percent/year.

Looking at the number 15 percent/year, enterprises will be happy with significant decrease in interest rate, which may help to ease the interest burden pressing on trading and production and being considered the most toughing difficulty of the corporate community. According to statistics of SBV, lending interest rates usually vary from 13.5-16.5 percent per year for the rural and agricultural sector, export, supporting industries, trading and production; from 14.5-18 percent per year for other fields; from 17 – 20 percent per year for non-production.

4 targeted customers and fields under regulation of SBV can account for 60-80 percent total balance in each commercial bank, it can be considered that the scope on which low interest rates cover is very large. However, this isn’t a new story, in 2011, credit structure saw a clear shift; when outstanding balance of loan for securities investment was down by over 43 percent, for real estate was down by over 10 percent, credit for export saw a record increase by approximately 58 percent, or credit for agriculture – rural area was up by roughly 25 percent etc.
The interest rate ceiling of 15 percent/ year is applied for short term loan for agricultural and rural development; for purposes of plans and projects of producing-trading export products, small and medium enterprises, for development of supporting industries. Certainly, to be eligible, the enterprises of those groups should meet some requirements for making loans under regulations of SBV and be considered to have transparent financial and liquidation status.

It means that the priority fields will still be prioritized and encouraged. Given loan interest ceiling of 15 percent, many banks have offered loan at interest rate lower than that ceiling, down to 13-14 percent/year. However, there has been no specific statistics of enterprises’ access to loan. Meanwhile, applying the loan interest ceiling, banks still give loans on the basis of agreement with other credit packages.

The story once again comes back to how enterprises can access capital at lower interest rate? Dr Cao Sy Kiem, Chairman of Vietnam Association of Small and Medium Enterprises – commented that: the loan interest ceiling down to 15 percent was a positive sign. However, the businesses have still not given much access. Statistically, for the recent time, there have been about 40 percent enterprises, or 250,000 ones making bank loans at interest rate of 17 percent/year.

In some banks, they have still dodged the ceiling to offer deposit interest rate of 14-15 percent/year, which, certainly results in loan interest rate higher than 15 percent/year. There are also signs that liquidation of banks has been much improved when some banks make investment in open market with their redundant capital. In April, SBV has released VND 9,055 billion to the open market for mortgage loans (term of 7 days at interest rate of 12-13 percent/year) and drawn back VND 10,962 billion. At the same time, it has issued bonds to gain VND 51,431 billion (terms of 28, 91 and 182 days at interest rates from 6.2 percent-12.5 percent/year). At the end of April, bond interest rate saw a drop day by day; besides, inter-bank interest rate also continuously went down. 

The reason for banks fostering transactions in open market, which forecasted possibility to have redundant capital, and such capital hardly coming to support enterprises, is that due to very low corporate capital digestion, difficulties some production sectors are facing, it is not simple to seek good customers to disburse at the moment.

The interest rate is oriented by the Government to be reduced, apart from stimulating aid and tax reduction to support enterprises in such current hard context. In the regular meeting of Government on May 4^th, Minister – Chairman of Government Office Vu Duc Dam said that since last June, the interest rate stayed high despite significantly decreasing CPI. Thus, the Government directed SBV to have flexible management and called for sharing from banks toward businesses.

Concerning policy, it can be said that application of loan and deposit interest rate demonstrates SBV’s intervention into the market via administrative measure. Deputy Governor Nguyen Dong Tien also stated that the government agency has take careful consideration before adopting administrative measures like interest rate ceiling in certain time and contexts. SBV has given out administrative measures like applying loan interest ceiling with some fields under consideration of some conditions and in the hard context of enterprises and the economy, which is on track with Governmental measures and aims at reducing loan interest rate, tackling capital difficulties for businesses.