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Sky-high interest rates hit businesses hard
Interest rates that have soared to 18-20 per cent per annum are forcing businesses to cut back on production and shelve expansion plans.
"We need to borrow VND3 billion (US$150,000) to upgrade our production technology but do not dare to do so at the moment because of the high interest rates," said Tran Thi Mai Trang, Deputy Director of Duc Dat Plastic Company Ltd.
At the end of 2009, the interest rate on loans was just 10.5 per cent per year, but in just one year, it nearly doubled to 18.66 per cent, she said.
This caused difficulties for her company to ensure production efficiency, she added.
Nguyen Thi Hong Huong, General Director of Vinatex Mart Group, said her company had planned a total investment outlay of VND500 billion ($25 million) this year to expand its distribution network and complete projects that were being implemented, including supermarkets in Soc Trang, Phan Thiet and Binh Duong Provinces.
These projects were key parts of its business strategy, and although credit accounted for only 30-40 per cent of the total investment capital, the high interest rates had caused huge difficulties for the company, she said.
We could not do anything but wait for interest rates to go down, she added.
Cao Tien Vi, Chairman of Sai Gon Paper Company, said they had borrowed $70 million since 2008 to improve factory capacity and paid approximately VND60 billion ($3 million) as interests for two years.
"However, this year, with the overly high interest rate of 20 per cent, our interest payment would go up to about VND100 billion ($5 million)," he noted.
Business representatives said their profits were not high enough to pay this kind of interest. Moreover, they would not have money to reinvest and apply technological innovations to diversify their product base. As a result, product quality would also suffer and they would become less competitive than foreign products, they said.
Policy intervention
Economist Bui Kien Thanh said high lending rates would lead to inflation because businesses would have to increase their selling prices to cover higher production costs.
The reason for high interest rates was that banks lacked money and had to tighten credit as a result, he said.
Thanh said among the solutions that had been mentioned often in recent times were to increase money supply via open market operations and to provide capital access without collateral to small banks.
According to the recently amended Law on Credit Institutions that became effective last month, the State Bank of Viet Nam (SBV) can lend money to commercial banks without requiring collateral.
Access to cheap capital would enable commercial banks to lower their lending rates, Thanh said.
Moreover, SBV should have solutions to let money flow to the production sector and limit other non-production channels.
"We should use interest rates to pull prices down, not let prices set interest rate," he said.
Cao Sy Kiem, Chairman of the Small and Medium Enterprises Association and former central bank governor, said that if loans carried interest rates of 20 per cent per year, businesses should make profits of at least 30 per cent to recoup their expenses.
"Therefore, enterprises do not dare to expand their business, causing negative impacts on the country's economy, especially scarcity of goods, high prices, low consumption, high unemployment and slow growth rates."
Kiem called for monetary policies that specifically aim to lower interest rates in order to solve difficulties faced by businesses.
vietnamnews
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