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Central bank unsympathetic to domestic firms’ loan woes   2008-07-06 - TN, Agencies

Vietnam’s central bank has told businesses to stop complaining about high interest rates because the sky-high rates were a side-effect of the government’s inflation-fighting agenda.

The State Bank of Vietnam said it had no choice but to raise interest rates to try to slow inflation.

High lending rates, combined with the dismal performance of the stock market this year, has left domestic enterprises short of cash.

The State Bank of Vietnam Ho Chi Minh City branch director Ho Huu Hanh said businesses would just have to adjust their business plans to cope with the higher interest rates.
Since the start of this year, the State Bank of Vietnam raised the base rate, which guides bank lending and deposits rates, to 14 percent from 8.25 percent.
“The central bank can’t satisfy all domestic enterprises’ demand for capital,” Hanh said.
“Banks are offering working capital mainly to exporters and investment projects that have already been carried out.”
The consumer price index reached 26.8 percent, year-on-year, in June, up from 25.2 percent in May, according to the General Statistics Office.
The government has named inflation its number one priority and reduced this year’s economic growth target to 7 percent from 8.5 percent.
Domestic businesses are the unhappy victims of the bank’s high lending policies.
One import-export company was offered a line of credit worth VND70 billion (US$4.2 million).
But the bank asked the company to repay the funds drawn after the company accessed only half the allowed amount.
The bank also said it would offer the import-export company a loan – with a much higher interest rate – of 70 percent of the value of the line of credit.
One large enterprise in HCMC said high lending interest rates would cause its subsidiaries to miss their business targets this year as 60-70 percent of their working capital came from bank loans.
Many construction works are being carried out at a snail’s pace as banks stopped lending and building costs soared.
One large food exporter said the amount they borrowed from banks this year could only meet half of its capital needs.
The dramatic decline of the stock market this year, down nearly 60 percent since January, has added to the pressure on domestic enterprises.
Most joint stock companies last year raised capital by issuing new shares.
But they will struggle to do that this year.
Figures from the State Securities Commission (SSC), the country’s stock market regulator, showed the rate of raising capital through shares this year fell 76 percent.
One third of joint stock companies that registered to issue new shares this year have shelved their plans to do so, according to the SSC.
Joint stock enterprises have been raising capital recently mainly through issuing bonus shares to existing shareholders.

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