Vietnam’s loan rates highest in the region


CurrentlSBV to slash interest rates further to make loans approachable to businessesy, Vietnam’s interest rates on loans are still highest in the region despite strenuous efforts by the State Bank of Vietnam (SBV) to adjust them since mid-2012.

Most recently, the SBV has fixed ceiling short-term loan rates at 11 percent per year for businesses operating in five prioritised fields and at 12-15 percent for those in other fields. In addition, interest rates for individuals buying houses or cars hover around 15 percent.

In the meantime, loan rates are much lower from foreign commercial banks, for instance, around 5-6.5 percent at the People’s Bank of China, 7.3-8 percent at Bangkok Bank and 8.25 percent at HSBC and Deutsche Bank AG in Thailand.

The Bank of Indonesia (BI) in particular has managed well to fix interest rates at 5.75 percent but other banks in Indonesia keep them at 7 percent.

The crux of the matter is that Vietnam’s frequent loan rate adjustments have made it difficult for domestic businesses to grow steadily in the long run.

Since 2008, China has adjusted deposit and loan rates several times and tried to keep them at around 5-7 percent per year, but Vietnam has done dozens of times. In neighbouring countries, the rates differ slightly within a range of 2.5-3 percent, while in Vietnam they fluctuate widely from 5-8 percent.

Economist Bui KienThanh says the discount rate is 0.1-0.25 percent in the US, and 0-0.1 percent in Japan. The long-term loan rate is 5 percent a year in the US and just 1-2 percent in Japan. By comparison, the loan rate in Vietnam is 1.5-2 times higher than that in regional countries and 3-4 times higher than in some European countries and Asian developed nations.

Thanh cites some reasons such as overheated growth, sharp increases in credit funding and bank loan rates. Another reason is that commercial banks operate inefficiently and simply apply high interest rates to make a quick profit. Consequently, domestic businesses have become so cash-strapped and weak to compete with others in the region which operate within the WTO platform.

High interest rates often make production costs higher, and domestic products less competitive than imported ones.

Thanh confirms that no businesses in the world can manage well with interest rates as high as in Vietnam.

Former Governor of the State Bank of Vietnam, Cao Si Kiem, who is president of the Small-and Medium-Sized Enterprises Association, says domestic businesses are unable to pay high interest rates on bank loans. In fact, most products imported from Thailand and China are cheaper in price than domestic products of the same bond on the market.

He insists that it is imperative to lower interest rates to help businesses access more capital so that they can stand firm on home turf.

The Government has already requested the State Bank of Vietnam to further reduce credit rates in April, accelerate the checking of commercial banks, simplify borrowing procedures, give priority to the agricultural and rural sector, stabilise exchange rates and tightly control the value of the Vietnam Dong.



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