High rates hurting businesses, hamper economic recovery

February 09, 2023 - 07:01
High interest rates have been hurting businesses' ability to invest in ramping up production capacity, said industry insiders and economists.
President of the Vietnam International Arbitration Centre Vũ Tiến Lộc addresses participants at a conference discussing how to better assist businesses in HCM City on Monday. VNA/VNS Photo Hứa Chung

HÀ NỘI High interest rates have been hurting the ability of businesses to recover and invest in ramping up production capacity, said industry insiders and economists.

Economists called for the central government to take measures to bring down the rates, which have been sitting around 10 per cent in recent months.

Trần Việt Anh, director-general of Nam Thái Sơn Import/Export JSC., said a majority of businesses were not interested in fresh loans but lower rates would be a significant help as they faced lower demand and struggled to keep workers.

"There are businesses with credit room but still reluctant to apply for loans due to high rates, which will contribute to higher operational costs," he added.

Even developers for social housing projects were not immune as they were forced to borrow at regular rates.

Lê Hữu Nghĩa, director of Lê Thành Construction JSC., said many social housing projects had to borrow at 14 per cent, roughly the same as other commercial projects. It certainly will not help bring down housing costs in the market.

Despite a directive from the State Bank of Vietnam to give preferential policies to social housing developers, commercial banks have been slow in implementing them, citing a lack of guidance from the central bank.

Nguyễn Ngọc Hòa, president of the HCM City Union of Business Associations (HUBA) said as current rates sit above 10 per cent, it's very unlikely for businesses to stay financially viable and stressed the need for measures by the central bank and the government to step in to bring it down in the next six months.

Hòa said a large portion of businesses uses their property assets as collaterals. As the property market has been hit with a cold spell, money have become difficult to come by as banks tightened their purse string.

Professor Trần Đình Thiên, former head of the Vietnam Institute of Economics, said as inflation started to pick up and numerous disruptions experienced by the domestic and the international markets, high rates have been making life difficult for businesses.

He said injecting money through public spending could be useful at a time like this but this channel has been known to be sluggish and inadequate in responding to market changes in a timely manner. Even public fund disbursements aimed at speeding up economic recovery have been slow due to a number of legal and framework barriers.

"There were always the same issues with our financial market and public investment we must address, especially with the corporate bond market and the stock market, to enhance trust and reduce risk across the banking system," Thiên said.

President of the Vietnam International Arbitration Centre Vũ Tiến Lộc said the country's long-term economic prospect depends a lot on the development of its business community. He stressed the importance of establishing a more streamlined and transparent framework for the financial market.

"Our businesses can only operate as well as the business environment allows. Improving business performance can only be done along with improving the business environment," he said.

Lộc called for the removal of cumbersome and unnecessary business conditions, stronger administrative reform and shorter import/export processing. VNS