High capital costs became the most highlighted issue during a meeting between HCMC leaders and enterprises earlier this week as well as in a report released this Wednesday by the Vietnam Chamber of Commerce and Industry.
According to the report about the local business environment and entrepreneurs’ confidence, rising capital costs were seen as the key bottleneck in the economy.
The State Bank of Vietnam as the highest authority tasked with monetary and financial issues of the economy has long been aware of what enterprises are facing, and has vowed to take measures to pull down the interest rate.
Governor Nguyen Van Binh in a press conference in Hanoi on Monday announced a decision that will force all banks to adhere to a new deposit interest rate ceiling of 13 percent a year instead of 14 percent that had been in place for months.
The governor also unveiled a road map to pull down the interest rate by one percentage point each quarter so as to bring the ceiling deposit rate to around 10% next year.
But the problem persists. According to local media, access to lower-cost capital for most enterprises remains extremely difficult.
“Enterprises are not happy, and the market is not excited after the Governor announced the rate cut,” Tuoi Tre said.
For a long time, enterprises haven’t been interested in rate-cutting programs launched by banks, simply because very few of them can be eligible for the cheaper funds, Tuoi Tre said, explaining the lukewarm attitude of enterprises toward the rate cut.
Vnexpress, in criticizing the central bank’s monetary management, said imposing ceiling deposit rates didn’t help reduce lending rates for enterprises.
This e-newspaper suggested that the central bank should control the lending rate rather than the deposit rate in order to encourage competition among banks as well as ensure a reasonable capital cost for borrowers.
As the deposit rate is capped, smaller banks cannot mobilize funds and thus have no capital to ensure healthy liquidity and to lend to their clients, while bigger banks enjoy ample funds that they use to lend to smaller credit institutions on the inter-bank market at rates as high as 40 percent a year, Vnexpress said.
Capping the deposit rate has choked off competition, while clients still have to borrow money at very high rates.
At the aforesaid meeting in HCMC on Tuesday, businesspeople complained that most of them had to borrow funds at annual rates of 20 percent a year or higher, rather than the soft rate of 15 percent - 16 percent as announced by banks.
A representative of Dai Phat Group said the company had just taken out a loan of VND30 billion and would have to pay an interest sum of US$6 billion a year.
Nguyen Trong Hanh, deputy director of the HCMC Tax Department, said that banks only cared about lending each other via the inter-bank market rather than granting credit to enterprises, adding that “recent announcements of rate cuts by banks are just lip services.”
Businesses were also worried about the fact that because of a shortage of funds and high capital costs, up to 2,500 enterprises in HCMC, or 15 percent of the total number, reported losses in February alone.
Sai Gon Tiep Thi quoted Nguyen Hoang Minh, an official of the central bank based in HCMC, as admitting that “banks focused too much on liquidity rather than supplying funds for enterprises.”
Tuoi Tre went further and criticized the monopolistic role of banks in the economy. This paper charged that banks had many sources of cheap funding, so the capital cost at banks averaged out at only 10 percent.
“They will make big profits when lending at 15 percent a year, but most of them charge clients at over 20 percent,” Tuoi Tre said.
“For a long time, in order to stabilize prices, local authorities have taken many measures to boost inventory of commodities, but capital as a special commodity is being floated,” Tuoi Tre said. “While many enterprises have to register input costs and selling prices of their products, banks have all the freedom to fix their lending rates.”
On the sidelines of the meeting between HCMC leaders and enterprises on Tuesday, the HCMC Association of Small and Medium Enterprises reported that over 60 percent of its members didn’t have enough capital to maintain business.
Pham Ngoc Hung, vice chair of the association, proposed that the central bank put a cap on the lending rate rather than the deposit rate to help businesses survive tough times.
Given the road map on reducing interest rates as announced by central bank governor Nguyen Van Binh early this week, the preventively high capital cost will remain until this year’s end and into next year, meaning the struggle with the high capital costs will be a long-lasting ordeal for enterprises.