Rates change shrinks State edge

Privately-run projects will benefit from levelling the rates playing field

Discrimination in loan approvals between state- and private-owned projects will also be removed.
Rates for preferential state loans will be set at between 6.6 and 7.2 per cent per year, according to Decree 106 on state development investment credits, due to take effect on April 27.
The rates will apply to all projects that take out long- and medium-term preferential loans from the Development Assistance Fund (DAF), the director of the ministry’s Banking and Financial Institutions Department, Pham Phan Dung, said last week.
“The interest rate for preferential loans should be equal to 70 per cent of the average commercial rates applied by state-owned banks, which are between 10 and 14 per cent,” Dung said.
Last week’s announcement is considered a basic change as currently different projects qualify for different rates in an effort to encourage socio-economic development.
The Kon Tum paper-making plant pays an interest rate of 2.7 per cent per annum, according to a DAF report. Shipbuilding and mechanical projects pay 3.5 per cent, and garment and textile projects pay 4.2 per cent.
Other projects that receive state preferential loans have been granted the maximum interest rate of 5.4 per cent, equivalent to 50 per cent of commercial loans.
Nguyen Duc Chi, director of the ministry’s capital markets division, told Vietnam Investment Review the decree was released with the objective of narrowing state subsidisation by raising interest rates. The decree also aimed to expand the number of private company borrowers to increase their competitiveness.
“Now, both state and private-owned projects are permitted to mortgage assets which will be formulated from the preferential loans, instead of just state-owned projects,” he said, adding that with the adjustment, private-owned companies may get more preferential loans approved.
Dung said car and bus production projects, manufacturing projects in textiles and garments, vocational training schools and mechanical projects were the sorts of projects private-owned enterprises could apply to the DAF for preferential loans.
“It is estimated that private-owned projects and companies account for just 20 per cent of the value of DAF loans, the rest go to state-owned projects,” he said.
So far, DAF has disbursed around VND80 trillion ($5.3 billion) of loans to development investment projects nationwide, of which VND20 trillion ($1.32 billion) have been re-paid and VND60 trillion ($3.98 billion) in loans are still outstanding. On average, DAF disburses around VND25 trillion ($1.62 billion) of loans to both state- and private-owned projects each year.
The new decree allows flexible adjustment of interest rates for preferential long-term loans. The ministry has the right to adjust the interest rates when the rates in the market see a fluctuation of 15 per cent or higher.