Banks increase lending rates, tighten requirements

H., the director of a processing and exporting company, said that earlier this month he was shocked to learn that the interest rate slapped on his VND3 billion loan was hiked from 18.5 percent to 21.2 percent a year, as of September 30.

“The new interest rate will ‘kill’ us as the contracts we have recently signed will only bring in small profits,” he said.

Lending rates have returned to an upward trend at a time when a large number of businesses are struggling to empty their unsold inventory stock in order to be able to prepare for the busiest trading time, on the occasion of the Lunar New Year next February.

Garment consumption has dropped by 20 to 30 percent against the same period last year, according to Dang Quynh Doan, director of fashion company Viet Thy.

Doan said she is still considering whether to borrow bank loans to increase production for the Lunar New Year or not.

“Businesses will struggle to repay loan interest as the poor consumption problem has yet to be solved,” she said.

The current lending interest rates are still too high given the borrowers’ ability to generate enough profits to maintain operations and clear interest, said Lam Quang Thai, chairman of Blue Exchange Co.

Stricter requirements

Although many banks are offering lending programs, few borrowers will actually be able to access the loans as the lenders continue to maintain their strict requirements, said an official from the Ho Chi Minh City branch of the State Bank of Vietnam.

With the economy still troubled, banks are hesitant to open their safes for lending, the official said on condition of anonymity.

Businesses with a high unsold inventory, and those without an adequate solution for their production outlets, are unable to access bank loans, several banks said.

Trinh Van Tuan, chairman of Ocean Bank, said his institution is willing to offer lending, but what’s important is whether borrowers can meet requirements or not.

“They should meet some conditions, and most importantly, should have effective business strategies,” said Tuan.

The CEO of HDBank, Nguyen Huu Dang, also said it’s hard for banks to loosen requirements for loans at the moment, as they have to ensure the ability to recoup capital.

Other banks said they have to consider loan applications carefully in order to avoid lending money to those who borrow to roll over their debts.

Not only business borrowers, but personal customers who want loans for unclear purposes will also be rejected by banks, they said.

As for the deposit interest rate that is currently capped at 9 percent a year, central bank governor Nguyen Van Binh said in a recent statement that it’s not the right time to remove the ceiling.

Although liquidity at some banks has been improved, some smaller institutions are still facing difficulties, the governor said.

“If the deposit rate cap is removed, small banks will increase interest rates to mobilize capital, sending rates sky-high, which will in turn increase lending rates,” he explained.