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As lending interest reaches new heights, some firms borrow from employees   2010-03-17 - VietNamNet/VNE

Not quite a month since the State Bank freed banks to charge a negotiated rate on medium and short term lending, those rates have risen to the 18-20 percent per annum range.


Bank liquidity crisis passes

State Bank removes lending cap

Vietnam warned of inflation and trade deficit 



State Bank of Vietnam (SBV) reports show that in the week of March 5-11, banks were offering 10 to 10.49 percent per annum on dong deposits, one percent per annum to businesses that deposited dollars and 3 to 4.5 percent to individuals who deposited dollar – in other words, the ‘capital mobilization’ rates were stable and below the ceiling set by SBV.


Short term dong loan interest was quoted at 12 percent per annum, at the ceiling level. Meanwhile, interest rates on medium and long term loans, now freed to climb, continued to move higher.  State-owned banks were offering dong loans at 14-15 percent, and large commercial banks typically offered 15-17 percent.  A number of small banks quoted as much as 18-20 percent per annum for dong loans.


Analysts polled by VnExpress believe that under current conditions, most businesses will forego taking loans at the 17-18 percent per annum level.  They said that businesses need to realize profits of 25 percent to be able to cover such a high interest rate.


Nguyen Van Huong, Director of Minh Tam Company, a farm products processor, said that he still ‘can borrow capital at reasonable interest rates’.  “However, if banks tell us that we have to pay 17 percent per annum, we will say ‘no’ and seek other capital sources,” he said,  “even if we have to scale down our production and reduce our borrowings while we concentrate on improving product quality and our competitiveness”.


With orders in hand, employees put up needed cash


In the face of lending interest rates they consider overly high, some businesses have thought of mobilizing capital from their staff.  A firm in Khanh Hoa province urgently needs capital to push up production after signing many export contracts. However, the enterprise must bear higher electricity and water prices and hesitates to take on a high-interest loan as well.


“We cannot tell our partners that we will raise their costs because the contracts were signed last year. Therefore, we will cut down expenses by borrowing capital from our staff,” the director of the company said.


The director said that borrowing capital from staff is an action that ‘kills two birds with one stone’. Workers feel happy because they can get a nice return on their savings, while the company can borrow capital at a lower interest rate. Especially, the company does not have to mortgage its assets for the loans.

Currently, such businesses are paying the interest rate of 12-13 percent to their workers, higher than the deposit interest rate and lower than the lending interest rate offered by banks.


Commercial banks complain that they find it hard to mobilize medium and long term capital as long as there’s a cap on the interest they can pay on deposits. The banks have urged SBV to remove that cap as well in order to create favourable conditions for banks to mobilize capital. However, the State Bank is only thinking about the commercial banks’ proposal.


According to SBV, the total trading volume in the interbank market last week was 84,645 billion dong and $1.5 billion, a decrease of 944 billion dong and $37 million in comparison with the week before.


The dong interest rate in the interbank market tended to decrease, falling 0.25-1.41 percent on average in comparison with the week before.

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