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Who’s to blame for high market interest rates?
Some financial experts believe that the issuance of high interest corporate and Government bonds is the main “culprit” stalling efforts to slash market interest rates.
Businesses have been complaining that lending interest rates applied by commercial banks at 13-14 percent per annum are overly high. They have called on the State Bank of Vietnam (SBV) and commercial banks repeatedly to ease interest rates.
Bankers, in turn, have remarked that it is very difficult to ease interest rates when businesses themselves issue corporate bonds at high rates of 14-15 percent.
Hoa Phat Group, for example, has issued 800 billion dong in three-year term bonds with an interest rate of 14.5 percent for the first year and floating interest rates for the next two years. Song Da Group has issued 1500 billion dong worth of five-year bonds with the interest rate of 15 percent for the first year. Vinaconex has issued two trillion dong worth of 2-year bonds at 14 percent for the first year.
“We cannot borrow enough medium and long term capital from banks, so we must issue corporate bonds,” a director of a big enterprise stated.
“The volume of corporate bonds that businesses issue is nothing if compared with the capital volume in the market, which is not big enough to control market interest rates,” he added
Doan Nguyen Duc, Chair of Hoang Anh Gia Lai Group, which once successfully issued bonds, noted that it is very difficult for real estate enterprises to find enough medium and long term capital from banks, because banks now focus on lending to production. Prestigious firms must mobilize capital through other channels, including bonds. He went on to say that interest rates for bonds are equal to interest rates at which they borrow from banks.
Phan Duc Trung, Chair of FPT Capital, noted that many big corporations successfully issue long term bonds, which should be seen as good news. Trung explained that enterprises pay interest rates that allow them to still make a profit from projects.
“Imagine that your business needs to purchase electricity to serve your production. If you cannot buy electricity, your production will stop. If you can buy electricity, though at high prices, your production will run. So, you will accept high prices, if it allows your business to run smoothly,” he explained.
According to Trung, once many enterprises successfully issue shares, this will create more investment opportunities with diversified products on the finance market. Prestigious firms with “good health” will be able to issue shares at acceptable interest rates, while bond issuance is not a factor affecting market interest rates.
The director of a securities company in Hanoi noted that the volume of corporate bonds is relatively small, therefore, the bond interest rates do not control the rates on the market. He pointed out that Government bonds, with very high volumes, is the main influence on market interest rates.
“The Government wants the deposit interest rate to be lowered to 10 percent, and the lending interest rate to be lowered to 12 percent per annum. However, this is an impossible mission, since the Government still pays high, at 10.5 percent, for its bonds,” he maintained.
According to the Ministry of Planning and Investment, the volume of Government bonds in 2010 accounts for 8.5 percent of 800,000 billion dong worth of totoal investment capital.
According to Dr. Nguyen Quang A, with the same interest rate of 10.5 percent, commercial banks would rather purchase Government bonds than receive deposits from the public. “Banks like purchasing Government bonds because they can use them to deposit at the central bank instead of compulsory reserves, or mortgage them for loans from the central bank,” A. noted.
vietnamnet, VnExpress
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