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Broken bank promises, businesses stuck   2010-02-01 - VietNamNet/TT

Businesses are complaining that their business plan have been damaged because banks refuse to provide loans.

 

 
X., director of a construction company, has paid back his four billion dong debt that just matured. The bank promised to provide another loan, but then refused, even though the new loan would be equal to ¼ of the debt he has already paid.

 

An advertising firm relied on a promise from a joint stock bank to give loans to fund their purchase of a car. The firm paid 30 percent of the car’s value already. The auto sales branch received verification from the bank on the loan and has fulfilled vehicle registration procedures.

 

However, the bank broke its promise, refused to grant the loan, and the firm had to sell the car just to pay for it, losing hundreds of millions of dong.

 

The demand for capital is always high at this time of year, so bank loan refusals and loan acceptance reversals have badly affected business operations.

 

To have enough capital to run their businesses, enterprises must borrow money on the black market at the exorbitantly high interest rate of five percent per month, or 60 percent per annum (the ceiling interest rate commercial banks can lend to clients now is 12 percent per annum). Some businesses say they can borrow money from banks, but with disadvantageous terms.

 

An electronics company director in HCM City observed that he borrowed in dong, but the bank disbursed the funds in gold. In its contract, the company borrowed three billion dong, but the bank gave them gold after calculating that a tael of gold was equal to 26.43 million dong on January 29. The lending interest rate is 18 percent per annum.

 

The director complained that he has been incurring “doubled” risks because of the fluctuating gold price.

 

Other businesses admit they can borrow money, but suffer sky-high lending interest rates. Businesses borrow money to meet production and business plans, so they need to borrow at 12 percent per annum at maximum. Yet banks deliberately consider the loans to be consumer loans, so that they can lend money at higher interest rates.

 

Banks that have refused to provide loans, frankly acknowledge they must restrict loans because capital is limited and lending money at low interest rates means not enough funds to cover expenses.

 

A joint stock bank director remarked that the current single lending interest rate makes it difficult to control the capital flow in the best interests of the national economy.  In theory, trading companies have higher profits than production companies, and if banks determine interest rates, they set higher rates for trading companies than for others. The high profits then are used to offset lower profits. Under the present conditions, however, the director lamented that this cannot be done.



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