Dr Vu Tien Loc, President of the Vietnam Chamber of Commerce and Industry (VCCI), the representative of the Vietnamese business community, said many companies complain that borrowing procedures applied by banks are beyond their means. Even when the Government applies preference policies, only 5-10 percent of small and medium enterprises (SMEs) are lucky enough to successfully borrow.
According to recent surveys by the Vietnamese Ministry of Planning and Investment, only a third of SMEs can access bank loans, a third have difficult accessible, and a third are unable to approach the capital source. Many banks applied fees that reportedly bring the real interest rates to 27 percent per annum. As a result, many companies do not dare to borrow money for production and business activities.
Companies have difficulty accessing capital sources
According to the Government’s instructions, companies operating in supporting industries and the agriculture sector can borrow bank loans with interest rates 1-3.5 percent lower than market rates. Few of them can enjoy this treatment. Many companies, especially SMEs, can hardly access bank loans although many banks tend to offer capital for SMEs and business households.
A survey conducted by VCCI showed that 74.47 percent of companies want to borrow money from banks but they cannot always do it. Mr Nguyen Thai Hoc, President of Vietnam Cashew Association (Vinacas), said cashew nut companies will need much capital to import raw materials from Africa from the second quarter.
Cashew nut companies need up to VND25,000 billion this year, including VND12,000 billion for this crop, but they can arrange only arrange VND6,000 billion. With current expenses, a tonne of exported cashew nuts requires US$8,100 (including interest rate, pay, fuel costs, etc) while the export price is only US$7,700 a tonne. Subsequently, companies suffer a loss of US$400 for each tonne. Notwithstanding high interest rates, companies still have no access to capital because banks cut lending to meet required credit growth, forcing them to downsize operation scales.
Dr Nguyen Thi Mui, Rector of Vietinbank Manpower School, said: When the State Bank of Vietnam (SBV) decided to cap credit growth rate at 20 percent, capital flows from banks weakened. Besides, interest rates are too high. “For a production company, the interest rate of 15 - 17 percent is already very high, let alone 25 - 27 percent. It is unbearable. As banks also have to raise interest rates to 17 - 18 percent, they must lend at 23 - 25 percent. Only nonmanufacturing companies can afford such rates,” said Dr Mui.
Sharp drop in deposits
Another reason for a decrease in bank loans is a decline in deposits and withdrawals from depositors, according to Dr Mui. Personal deposits account for about 40 percent of total deposits at banks, the rest is deposited by other depositors like institutions and companies. When interest rates are unbearable, companies would rather withdraw money from banks than borrow it for business activities.
Besides, when some small banks raised deposit rates to attract more capital, big lenders must follow step to prevent deposited capital from being relocated. A source from the Hochiminh Stock Exchange-listed Vietinbank shows that deposits recorded on April 28, 2011 dropped 17.09 percent from December 31, 2010. From March 31 to April 28, 2011, total deposits sank 5.77 percent. The amount of deposits from corporate depositors is formidably declining,” said Dr Nguyen Thi Mui. Meanwhile, refinancing and rediscount rates have recently been revised up by the SBV.
Capital flows into interbank market?
While companies are having difficulty accessing bank loans, a significant amount of capital is lent on the interbank market. According to Dr Mui, many credit institutions, especially big banks, have large amounts of demand deposits, ranging from VND35,000 - 40,000 billion. According to Circular 13 (an adjustment to the previous Circular 19), banks cannot freely lend these kind of deposits to ensure system safety. But, after they raise capital from depositors, they must lend. Thus, they choose to lend on the interbank market. Besides, lending on the interbank market satisfies two important criteria for banks: monetary market stability and profit.
In recent days, overnight rates on the interbank market reached 21 percent per annum, or even 25 percent. "Obviously, this is a profitable channel,” said Dr Mui. "For banks borrowing from the interbank market with week-based maturity, the biggest concern is liquidity.” Many banks cannot mobilise capital with an annual interest rate of 17 - 18 percent, they have to borrow from the interbank market with a rate of above 20 percent.
The key existing concern is how to harmonise relations of refinancing, discount, interbank, open market operation (OMO), deposit and lending rates.
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