VietNamNet Bridge – Most Vietnamese businesses have to take out bank loans at an annual interest rate of 10-13 percent, while companies in neighboring countries can access loans at a 5-6 percent rate and, those in developed economies, at a 2-3 percent rate.

Dr. Luu Duc Hai, a senior researcher from the Ministry of Planning and Investment’s Development Strategy Institute, pointed out that high interest rates on bank loans have made Vietnamese products less competitive in domestic and international markets.

Loans that have preferential interest rates are offered to qualified Vietnamese companies for a rate of 8-10 percent per year. But companies of countries that have export items that compete directly with Vietnamese can borrow at much lower rates. Chinese, for example, can borrow at 6.6 percent, Thai 6.9 percent, and Malaysian 4.9 percent.

Hai, while confirming that the lending interest rate had fallen by half from its peak of over 20 percent in 2010-2011, said the interest rate was 1.4-2 times higher than other countries, making Vietnamese products less competitive in domestic and world markets.

The majority of Vietnamese businesses, both small- and medium-sized, that make products for domestic consumption are now paying 10-13 percent per annum for loans.

Meanwhile, foreign-invested enterprises (FIEs) can get loans at very low interest rates in their home countries, which allows them to cut expenses and make their products more competitive in the Vietnamese market.

The interest rates have been stable in the US, at 3.3 percent per annum; in Japan, at 1.5 percent;  in South Korea at 4.7 percent; and in Taiwan, at 2.9 percent.

Replying to the criticism about the high interest rates, bankers said the lending interest rate cannot be lowered further because they have to mobilize capital at high interest rates themselves.

Meanwhile, they cannot pay lower rates for deposits, because, if they do, people will not deposit their idle money in banks.

The director of a joint stock bank, who asked to be anonymous, affirmed that his bank’s liquidity is ample, but he does not intend to reduce deposit interest rates.

“If the deposit interest rate is not higher than the inflation rate - that is, depositors cannot expect good profits from deposits - they would then rather keep money at their coffers than deposit at banks,” he said, adding that this was the so-called “real positive interest rate policy”.

The policy has been applied in most other countries in the world, including Vietnam. Under the policy, interest rates are set at levels high enough to offset currency devaluation and ensure real profits for depositors.

The outstanding feature of the policy is that it can benefit all depositors, the banking system and national economy.

However, Hai believes that Vietnam should rethink the policy for two reasons.

First, the inflation rate in Vietnam is always high, which keeps lending interest rates at high levels, thus putting a heavy burden on businesses.

Second, interest rates in Vietnam are set in relation to headline inflation, or headline CPI, not core inflation or seasonally adjusted CPI. Therefore, interest rates are higher than necessary.

TBKTVN/VNN