Businesses put under mounting pressure amid rising bank rates

Enterprises endure difficulties

Since the beginning of the year a number of commercial banks have announced an increase in deposit interest rates amid global market fluctuations. The move comes amid firms needing loans to resume post-pandemic production and businesses worrying that it would fuel lending rates.

Commercial banks such as TPBank, MSB, ABB, and OCB have raised their lending rates which now hover around 12% to 12.5% per annum, or 2.5% higher than the rates fixed at the start of the year.

Duong Duy Dong, director of a mechanical company in Hanoi that borrowed VND2.5 billion from a bank, told baogiaothong.vn that he has recently received a notice from the bank to increase interest rates by 1%.

“Rising rates causes us a headache, because along with the rising bank rates we are now enduring rising costs of fuel and raw materials,” said Dong.

Similarly, Nguyen Lam Vien, chairman of the Board of Directors of Vinamit JSC, shared the view that agriculture can be viewed as the priority sector that must pay annual interest rates of only 5% to 6% for bank loans. Banks recently raised their rates by 0.5%, and he anticipated that the rates would be further adjusted following the State Bank’s decision to increase its operating rates.

“About 30% to 50% of business capital comes from banks. Most businesses have just experienced the COVID-19 pandemic and have not fully recovered yet. Now they have to face financial fluctuations, it is even more difficult,” said Vien.

A necessary move

Reality shows that interest rates on bank loans are always one of the factors that directly impact the cost of products and services, as well as the overall competitiveness of Vietnamese enterprises. Businesses therefore worry that the rise of deposit interest rates that started in late 2015 has yet to show any signs of cooling down.

High lending rates will significantly increase the cost of capital for businesses, thereby affecting their ability to recover. However, economist Dr. Vo Tri Thanh said this is a necessary solution in order to reduce pressure on the exchange rate and help to better control inflation.

“Rising interest rates will adversely affect economic growth and recovery, but in the context of a sharp increase in global inflation and interest rates, Vietnam cannot go against the general trend, and therefore businesses and people must accept,” Dr. Thanh explained.

Nguyen Quoc Hung, general secretary of the Vietnam Bankers Association, also admitted that commercial banks cannot be required to keep lending interest rates unchanged amid rising deposit rates. However, the banks must move to increase lending rates at appropriate levels in order to share difficulties with clients.

Solutions ahead

Stabilising bank lending rates, despite rises in operating interest rates and deposit rates, remains an issue of concern for businesses in the current context.

As a means of ironing out snags for businesses, economist Nguyen Bich Lam suggested that the Government direct ministries, agencies, and sectors to review and promptly introduce appropriate policies and solutions. In addition, the business community should be thoroughly prepared to boost production and business activities, as well as ensuring a stable supply and a constant circulation of goods.

“The Government needs to quickly consider reducing some taxes and fees to support businesses and help reduce input costs,” Lam said, adding that the role of price management should be more flexible in the coming time.

Meanwhile, according to Dr. Vo Tri Thanh, there remains ample room to keep lending rates stable, while deposit rates increase. He said the Government should speed up the disbursement of the 2% interest rate support package which has so far been implemented at a snail’s pace.

Pham Tien Dung, deputy governor of the State Bank of Vietnam, noted only VND14-15,000 billion out of a total of VND40,000 billion of the package has so far been disbursed this year.

“Businesses are not excited about the rate support package for fears of examinations afterwards, and the State Bank of Vietnam will hold a conference to listen to businesses and make adjustments,” affirmed Dung.