Vietnamese enterprises hit bank loan barriers

By Bui Hong Nhung   April 29, 2016 | 03:06 pm GMT+7
Vietnamese enterprises hit bank loan barriers

High rates and difficulties in loan access are the most typical problems that Vietnamese enterprises are facing, the Vietnam News Agency quoted the Vietnam Chamber of Commerce and Industry (VCCI) as saying at a meeting with the Prime Minister on April 29.

The average interest rate offered by Vietnamese banks is about 8 percent, two-to-three times higher than neighboring countries. Chairman of the VCCI Vu Tien Loc said that: “At the current rate, Vietnamese enterprises can’t compete with foreign rivals.”

Economic experts explained that commercial banks are keeping interest rates high to avoid bad debts, which accounted for 2.5 percent of total loans in 2015, equivalent to VND117 trillion ($5.25 billion), the central bank reported.

The VCCI added that the majority of small and medium-sized enterprises (SMEs) are struggling to access bank loans. A survey conducted by the Enterprises Association of Hai An district in the northern city of Hai Phong revealed that 60 percent of small firms and 38 percent of super small firms have borrowed money from local banks, while the figure for large firms is 76 percent.

The reason behind this low number is that SMEs are unable to meet collateral conditions for loans, and procedures are complicated.

Hanoi’s Association of Small and Medium Enterprises said that although businesses have land lease contracts, they are not allowed to use them as guarantees for bank loans. The association in the Mekong Delta province of Vinh Phuc added that high lending rates prevented enterprises from borrowing money in order to lower productions cost or upgrade equipment.

To cope with this capital flow issue, some companies have borrowed money from the black market as a last resort.

“Vietnam has three years left to totally integrate with other markets through the Trans-Pacific Partnership or the Vietnam-European Union Free Trade Agreement, so the next three years is an important period for our enterprises,” said the chairman of VCCI.