The State Bank of Vietnam lowered interest rates on short-term deposits and ceiling interest rates on loans in a bid to boost bank loans, the English language version of the Nhan Dan (People) newspaper reported.

However, both enterprises and commercial banks still face many difficulties to be able to secure loans or spur credit growth, according to the newspaper.

Chairman of Thuan Phuoc Seafood and Trading Corporation Tran Van Lanh said his company got access to bank loans at the rate of 6 percent and this helped boost his business growth. To enjoy such a low rate, a company must have a good record and is able to prove to banks the feasibility of their business plans, Lanh explained. However, according to a recent survey, not many SMEs in Da Nang can borrow capital due to banks' strict lending requirements.

Director of Phuoc Tien General Trading Company Do Anh Tuan said his company was always in need of capital to expand its business but was unable to borrow low-cost loans from banks. Currently the company is borrowing at an average rate of 10.5 percent.

Nguyen Thi Tuyet, Director of Hoang Khuyen Trading Company, a manufacturer of glassware products, said that due to their limited knowledge about procedures, many small and medium enterprises were unable to present their business plans to banks. They also did not have big assets to use as collateral so they were unable to access bank loans. In addition, most enterprises which have yet to repay their debt, are not able to ask for more loans at lower rates.

Deputy General Director of Vietcombank, Nguyen Danh Luong said that in line with the central bank’s directive, Vietcombank has reduced both deposit and lending rates. For priority sectors, Vietcombank cut the rate on short-term VND loans from 8 percent to 7 percent and capped the rate on medium and long-term loans at 10 percent. According to Dr. Nguyen Tri Hieu, although a low interest rate is not a decisive factor, it is definitely a motivation for enterprises to borrow more, thereby accelerating credit growth.

Dr.Tran Hoang Ngan, a member of the National Financial and Monetary Advisory Council, said that enterprises were still struggling to secure medium and long-term loans. Therefore, if banks could slash their interest rates further, it would encourage enterprises to borrow. Ngan said enterprises wanted interest rates on medium and long-term loans to be lowered to 5-6 percent, or 7 percent at the maximum so that they could invest in new machines to manufacture products.

According to Cao Sy Kiem, President of the Vietnam Association of Small and Medium Enterprises, after recent cuts, interest rates would no longer be a barrier to enterprises’ operations and what was needed now was a policy to boost aggregate demand so that enterprises could quickly reduce their inventory levels. In addition, administrative procedures also needed to be reformed, suggested Dr Kiem, adding that enterprises should re-examine their capacity and formulate appropriate business plans to fully utilise the new policy.

Deputy General Director of Maritime Bank Tran Xuan Quang said medium and long-term capital was always a difficult problem for a bank because deposits were mainly short term. With short-term deposits accounting for a large proportion, if banks offer long-term loans, they will likely face a liquidity crunch in a case of instable market. Quang said that it was necessary to develop a medium and long-term capital market for enterprises in order to reduce the pressure on banks and help enterprises to be more proactive about their long-term business plans.-VNA