Interest rate dip fails to stimulate lending

April 07, 2014 | 15:25

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In mid-March the State Bank announced it would ease the ceiling interest rate applicable to one to six month term deposits by 1 per cent, to 6 per cent.

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Firms have shown little interest in the move.

“We wonder if the lending rate will correspondingly go down and if banks will retain their high credit standards for new loans? In fact, strong firms are still cautious about borrowing as consumption is still low and weak firms cannot access capital,” said Tran Quoc Manh, managing director of Ho Chi Minh City-based Saigon Trade & Production Development Corp. (Sadaco).

In fact, production firms in the city are still faced with over 10 per cent interest rates from joint stock banks and 9-10 per cent from state commercial banks.

These levels eat through most of a company’s profit margin and they cannot raise prices, as consumption is weak, Manh added.

Manh thinks short-term loans should be at around 6-8 per cent interest and the SBV should offer incentives such as easing lending procedures to help more companies recapitalise.

On the other hand, banks should consider providing unsecured loans to businesses with sound plans because, in fact, many firms with good potential could not access unsecured loans.

A recent encouraging moment occurred recently at a networking event between banks and businesses when state-owned Vietinbank’s East Saigon branch provided preferential loans to six enterprises and two family businesses totaling VND307 billion ($14.6 million).

“This event marks the start of the second-phase networking programme between banks and firms in Ho Chi Minh City. It is aimed at banks providing more preferential credit packages to city-based firms this year,” said Nguyen Hoang Minh, deputy director of the central bank’s Ho Chi Minh City branch.

By By Thanh Vu

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