Bank loan interest rates climb to new high, SMEs stop borrowing

The lending interest rates have been pushed by commercial banks up to 20-22 percent per annum. Small and medium enterprises (SMEs) and individuals have stopped borrowing money because they cannot obtain the profits high enough to cover such a high capital cost.

Interest rates toweringly high
According to a report by the State Bank of Vietnam, the highest lending interest rate now is 22 percent per annum. However, according to VTC, some banks are offering loans at the interest rate of 26 percent per annum.

Representative from Ice Vietnam Production and Trade Company, a wooden furniture producer in Long Bien district in Hanoi, said that currently, commercial banks only give support to state owned enterprises, while private enterprises have to try to access loan sources based on their personal relations. He said it is nearly impossible to access bank loans at this moment, even though enterprises accept to pay the high interest rate of 18 percent per annum.

According to Ice Vietnam, if the enterprise can borrow money at the interest rate of 18 percent per annum, it needs to make the profit of 25 percent per annum in order to cover the interest rates and other expenses. Meanwhile, it is very difficult to make such a high profit at this moment.

Dinh Ngoc Hung, Director of Next Technology Company, said his enterprise is a small company, therefore, it is very difficult to access bank loans. Hung has received an offer from a bank to lend at the interest rate of 26 percent per annum. If Hung accepts the loan, he will have to make the profit of 50 percent per annum to be able to pay for interest rates, workshop premises, depreciation and pay to workers. He said such a high profit of 50 percent proves to be unfeasible.

It seems that commercial banks turn a deaf ear to the call from enterprises for slashing lending interest rates. In fact, banks explain that they cannot offer loans at low interest rates, because they have to pay high to get capital.

Though the State Bank of Vietnam has decided that commercial banks must not pay more than 14 percent per annum for Vietnam dong deposits, banks still have to offer the deposit interest rates of 16 or 17 percent to attract depositors. At this moment, when the inflation rate is high (six percent in the first three months of the year), people would inject money in other investment channels instead of making deposits if banks do not offer reasonably deposit interest rates.

Individuals also have to “live without bank loans”
Not only SMEs dare not borrow money to expand production, but individuals also do not want to get consumer loans at this moment.

If a person with the monthly income of 10 million dong (in Vietnam, those, who have the monthly income of 10 million dong are considered high income earners) borrows 100 million dong for one year at the interest rate of 22 percent per annum, he would have to pay 10,130,000 dong in total in the first month (8.3 million dong in principal and 1,830,000 dong in interest), which is even higher than his income.

Commercial banks have committed that very few people come to borrow money from banks now, because of the overly high interest rates. As everything is getting more and more expensive, people have to fasten their belt. They will only spend money on the most necessary things, while they will not borrow money unless they necessarily have to.

Dang, a worker of the Hong Ha Stationary Company, said he once planned to renew his house. However, he has delayed the plan, accepting to live in the old house, because he dare not borrow money from banks. Both Dang and his wife can earn a little more than 10 million dong a month. If they borrow money, they will have to pay 10 million dong a month in interests, and they will not have money to live.