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Central bank refuses to cap interest on long-term loans
The State Bank of Viet Nam will not cap interest rates on loans given for longer than a year except in the case of four priority sectors, Nguoi Lao Dong (Labourer) newspaper quoted its chief as telling the media on December 27.
The refusal by governor Nguyen Van Binh, who is wary that cheap funds will again find their way into the property market, has attracted criticism, though there was also support in some quarters.
Huynh Van Minh, chairman of the HCM City Enterprises Association, said the decision was not fair considering deposit interest rates have been capped at a meagre 8 per cent.
Businesses still cannot borrow at reasonable rates unless they have a good relationship with banks, he lamented.
With banks able to mobilise deposits at low rates, they can pick and choose their lenders and fix whatever loan interest rates they want, he said, making it hard for businesses to get loans.
Truong Chi Thien, director of Vinh Thanh Dat Food Joint Stock Company, said his firm recently got a short-term bank loan.
Though the interest rate was slightly lower than it had been before the deposit rate cap was cut to 8 per cent, it was still very high considering his company's financial state, he said.
Besides, most banks were now applying very strict lending criteria, meaning businesses without collateral had no chance of getting a loan.
Even if they had assets, they were valued very conservatively by banks to hedge against risks, he said.
Senior economist Bui Kien Thanh also disagreed with the governor, saying to prevent money from flowing into the property sector, the central bank could cap the amount lent to the sector.
Dr Dinh Son Hung, deputy director of the HCM City Institute for Development Studies, said: "When the maximum deposit interest rate is reduced to 8 per cent, a similar adjustment should also be made to lending rates to support businesses.
"If banks do not want to cut their lending rates, the central bank could apply measures like capping the rates," he said.
Support for policy
Some analysts, however, agreed with the SBV's policy of not imposing a lending interest rate cap, Vietnamplus said.
It quoted them as saying this could have a bad impact on businesses. If the cap is imposed, banks would choose big companies to lend to in order to reduce risks.
Small businesses would be elbowed out in that case, they pointed out.
The arguments for and against come in a scenario in which lending is fraught with risk and banks' bad debts are already at very high levels.
The central bank has, however, capped interest rates on loans to small- and medium-d enterprises, agricultural and rural firms, exporters, and support industry at 12 per cent.
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