Long-term interest rate subsidisation unattractive to bankers and businesses

August 27, 2009

LookAtVietnam – The medium-and long-term interest rate subsidisation package has not caught the attention of either bankers and businesses.

Businesses indifferent


While the short-term interest rate subsidisation package aims to provide working capital for businesses, the second package aims to help businesses get more capital to expand production scale and make reinvestment.


Dr Tran Du Lich, a well-known economist, said that he has found out after working with many banks that very few businesses have been seeking long-term preferential loans.


Lich went on to say that not many Vietnamese businesses know how to use demand stimulus packages to restructure themselves and develop business.


“Businesses don’t borrow money because they don’t have investment projects, not because banks do not have enough money to lend,” Lich said.


Bankers have admitted that the disbursement of the loans under the medium- and long-term interest rate subsidisation programme has been going very slowly. One of the reasons behind the slow disbursement, according to Nguyen Duc Huong, General Director of Lien Viet Bank, is that the feasibility reports presented by businesses still cannot persuade the bank to give money.


Huong added that in many cases, businesses hired consultants to write feasibility reports to submit to banks, which explains why owners of businesses sometimes cannot answer questions related to the projects.


Meanwhile, analysts have explained the slow disbursement in other ways. They said that in the current conditions of the economic downturn, what businesses are trying to do is to resume production to survive the difficulties. They will only think of restructuring businesses or target longer-term business plans when the national economy becomes better and business is more stable.


Nguyen Chien Thang from the HCM City Woodwork, Fine Art and Craft Association, though admitting problems in the skill of writing feasibility studies, said that businesses will only think of borrowing money to expand production if they feel they can sell products.



“If businesses have many orders, they will think of making heavier investment to expand factories. However, as the market remains unstable, no one dares make investment,” Thang said, adding that unconvincing feasibility reports, which are made in the conditions of low consumption demand, will not successfully persuade banks to lend money.


Deputy Chairman of the Vietnam Plastics Association Ho Duc Lam also thinks that businesses only want to borrow money as working capital, while there is not high demand for capital to purchase more equipment or upgrade technology.


Lam said that plastics companies once were told to purchase equipment now to enjoy low prices. However, the delegation of officials of the Ministry of Industry and Trade have found out from the trips to Asia and Europe that the machines for plastics products are not much cheaper at all than previously.


Bankers more selective in providing long-term loans


The State Bank of Vietnam has decided to lower the percentage of short-term loans which commercial banks can use for long-term loaning from 40 percent to 30 percent. The banks which have a current figure higher than 30 percent will have to lower the percentage to the required level by early 2010 at the latest.


The new decision has forced commercial banks to be more selective in providing long-term loans.


Huong from Lien Viet Bank said that his bank is restructuring long-term capital mobilisation and lending, and that it is limiting providing long-term loans.


Meanwhile, the current mechanism does not encourage banks to provide long-term loans. While banks have to mobilise long-term capital at higher cost than short-term capital, they have to provide loans at the same ceiling interest rate of 10.5 percent for both short-term and long-term loans.


Deputy General Director of a joint-stock bank has also confirmed that his bank is focusing on providing short-term loans, since long-term loans do not bring profit.




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