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VietNamNews

Banks resist order to lower rates

Update: July, 20/2012 - 10:14

 

Transactions at Vietinbank in northern Hung Yen Province. The State Bank would take measures to handle any banks which did not want to implement the interest rate cut. — VNA/VNS Photo Hong Ky
HA NOI — Commercial banks are admitting that progress has been slow in complying with a recent Government order to refinance outstanding loans to enterprises at lower interest rates, a measure designed to help struggling businesses.

Some existing commercial loans bear interest rates as high as 19 per cent or more, and banks have been ordered to reduce these rates to 15 per cent or less by July 15 to help enterprises avoid defaults.

Small and Medium-Sized Enterprises Association chairman Cao Sy Kiem said that the State Bank of Viet Nam announced the measure earlier this month in a meeting held to review banking sector performance in the first half of the year. It ordered commercial banks to review outstanding loans and consider the financial capacity of businesses in order to refinance loans at lower interest rates and help struggling businesses maintain operations.

However, Kiem said, the reductions in interest rates have been slow in coming. Many enterprises have been forced to contact their lenders to seek the lower rates, but many of these banks have yet to issue specific decisions.

Some banks claimed to be waiting on approvals from shareholders before refinancing the loans, Kiem said, while others have argued that lower interest rates to below 15 per cent across the board would put weaker banks at a disadvantage against their larger competitors. Slashing interest rates on existing loans might drive some weaker banks into losses or insolvency.

Kiem said the State Bank needed to issue a regulation ordering the lower interest rates, rather than simply making an announcement at a meeting and expecting banks to adhere. Many banks are hesitating to comply, fearing that their competitors will resist doing so and thereby put them at a competitive advantage.

To counter the concerns, the deputy director of the State Bank branch in HCM City, Nguyen Hoang Minh, said that any businesses refused lower interest rates by on exitsing loans should report the situation to the central bank, which would be strictly handled.

State Bank deputy governor Le Minh Hung has also said the State Bank would take measures to handle any banks which did not want to implement the interest rate cut.

Vietinbank chairman Pham Huy Hung said his bank had complied with the order and would offer new loans to businesses at interest rates of 11-12 per cent per year. Borrowers with sound financial positions would be offered rates of 10-11.5 per cent.

Hung blamed the losses of many businesses, however, on careless management, and he criticised those which have invested in non-core lines of business such as real estate development and securities, forcing them into losses after the real estate and stock markets fell into difficulties.

LienViet Post Bank vice chairman Nguyen Duc Huong agreed, saying that businesses had put capital into risky investment portfolios.

Economist Dinh The Hien said high financing costs weren't the only problem plaguing businesses. The biggest problem for many was big inventory stockpiles. — VNS

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