Inflation, bad debt keep interests rates high: SBV

Many businesses are complaining that a high loan interest rate of around 9.3% a year is leaving them unable to access credit to keep their operations going, the central bank said in a statement.

It said that Vietnam’s high economic openness exposed it to global financial and monetary changes and the domestic interest and exchange rates were subsequently affected.

Interest rates globally were high last year and earlier this year as central banks continued to tighten their monetary policies, and this made it difficult for the SBV to bring the rates down.

Core inflation in the first four months was 4.9%, while the target for the year was under 4.5%.

A circular issued on April 23 allowed banks to delay their collection from borrowers facing financial difficulties, but this also made it difficult for banks to ensure they can pay back depositors, and this made it a challenge to bring down interest rates.

A number of small banks have also been keeping their deposit interest rates high to attract and retain customers, and this contributed to the challenge.

The economy is too dependent on banks, the SBV said, and this caused interest rates to be high. The credit-to-GDP ratio was over 125% by the end of last year.

Banks have been mobilizing short-term deposits but have to give out long-term loans while previous borrowers have been struggling to pay back loans, putting pressure on loan rates.

A total of 88% of deposits in Vietnam are short-term, while 52% of credit is mid- to long-term.