The State Bank of Vietnam’s decision to allow commercial banks to negotiate interest rates for loans to businesses, announced on 26 February, has sparked new worry that the lending interest rate will rise to levels that businesses cannot afford.

Negotiation-based interest rates to be applied to medium and long term loans

 

Previously, the permissable rate for such loans had been capped at twelve percent.

Vo Dai Chau, Advisor to the Management Board of Trust Bank, told Tuoi Tre newspaper that banks themselves must pay nearly twelve percent to borrow funds.  Adding administrative costs of three to four percent, the capital cost to banks is fifteen to sixteen percent per annum.

However, Chau said that banks cannot demand overly high lending interest rates or they will not be able to find customers.  Loan costs need to be at a level high enough to bring profit to banks and low enough to bring profit to borrowers, he emphasized. Thus the business lending rate is likely to settle at some 16 percent per annum or higher and change every six months.

Chau added that Trust Bank will announce its policy in a few days.

Nguyen Duy Hung, General Director of Vietnam Thuong Tin Bank, agreed that stiff competition compels banks to keep interest rates low enough to attract clients.  It may be that banks will have to lend money at the interest rates equal to their capital cost, Hung speculated, but in return, businesses will agree to use other, more profitable, services of the banks.

Businesses are not pleased by the prospect of paying sixteen percent annually for loans.  Mai Manh Toan, Director of Duc Thanh Company, a coffee producer and trader, said that the maximum acceptable interest rate is thirteen percent per annum.

“We will have to reconsider business efficiency if the banks demand fifteen percent,” Toan said.  “Even if a bank we use provides loans at low interest rates but then collects additional fees to push the lending interest rates high up, we will part company with it.”

At Nhat Tien Import-Export Company, Managing Director Pham Thai An said that his company can accept an interest rate of thirteen percent per annum on average.  To finance consignments which can bring high profit, the company can accept loans of up to fifteen percent.

Do Ha Nam, General Director of the Intimex trading company, called an annual interest rate of fifteen percent “unaffordable for businesses.”  Nam said that many businesses have shifted to borrowing in dollars.  Dollar loans are available at five percent per annum, but borrowers must consider the possiblity of further dong devaluation against the dollar.