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Lending rate spike scares all borrowers
Individual borrowers, as well as businesses, are being stung by increasing lending interest rates.
In a bid to slow galloping inflation, Vietnam’s central bank last month lifted the base interest rate, which guides lending and deposit interest rates, to 14 percent per year from 12 percent.
The central bank’s move gave the green light to private banks to push deposit and lending interest rates up as high as 21 percent per year.
Lan, from Vung Tau Town, last year borrowed VND520 million (US$31,000) over three years from a local bank to build a house.
The bank offered a lending interest rate of 1.03 percent per month.
After six months, the lender raised the rate to 1.75 percent, increasing the pressure on Lan’s family finances.
“Now we have to pay more than VND7.8 million ($463) per month, a monthly increase of VND2.5 million, due to the rise,” she said.
“It’s really a heavy burden to me and my husband because we each only earn VND10 million ($595) per month.”
A Ho Chi Minh City borrower was paying VND8 million ($476) per month for a loan he took out at the end of last year with an annual lending interest rate of 12 percent.
But a few days ago, the bank raised the lending rate to 13.8 percent per year, increasing the borrower’s monthly payments to more than VND9 million ($536) per month.
Minh, also from HCMC, was also hit hard, with the lending rate on his loan rising from 1.22 percent per month to 1.75 percent per month.
“The monthly amount I have to pay rose to VND8.75 million ($520) from VND6.1 million ($363),” he told Thanh Nien.
“It’s too much for someone like me, who only earns 11 million ($655) per month.”
Many enterprises are also jumpy about the lending rate hikes, according to the HCMC Business Association, especially as the slowing economy meant many had slimmer profit margins.
To provide a loan, banks assess three key factors – the purpose of the loan, the repayment capability and the security offered.
Banks will offer loans to borrowers if the monthly repayments on the principal and interest make up a maximum of 60 percent of a borrowers’ income.
Lenders also used to stipulate in lending agreements that the loan interest rate will be adjusted every six to 12 months.
But many banks have recently been raising rates every three months.
The HCMC Open University’s Dr. Nguyen Van Thuan said banks were allowed to raise rates but he warned that pushing rates too high was likely to cause borrowers to struggle to make their payments, increasing banks’ risks of many loan defaults.
ACB tellers complete transactions for clients at a branch in Ho Chi Minh City
Thanhnien
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