Long-term loans prove elusive
Long-term loans prove elusive
Businesses are finding it difficult to access long-term credit with commercial banks currently preferring to offer only short-term loans, says one corporate executive.
The executive, who asked to remain anonymous, said that his company would like to borrow at terms of one or two years in order to anticipate financing and make long-term business plans.
However, he said, banks were only offering short-term loans of one to three months with preferential interest rates.
Vietnam International Bank (VIB), one of the first banks to publish its lending interest rates on its website, only lists rates for loans of one to three months, he noted.
Viet Nam Association of Small and Medium-d Enterprises chairman Cao Sy Kim said that companies depended upon bank financing now that other channels for raising capital, for example, the securities market, remain stagnant.
Kim said that banks would prefer not to offer long-term financing since the loans were risky in the context of an ongoing production and business slowdown and an unpredictable economy.
To encourage banks to make long-term loans, the Government needed to demonstrate its ability to keep inflation under control for a sustained period of time, helping banks attract long-term deposits, he said.
Contrary to banking practice elsewhere in the world, Kim said that long-term lending rates needed to be higher than those for short-term loans and that rates were already too high for many struggling companies to be able to afford.
According to statistics from the State Bank of Viet Nam, lending interest rates at the end of last month were 10-13 per cent for short-term loans to exporters and borrowers in the agricultural sector, while interest rates on longer-term loans remained at 14.6-17.5 per cent.
Kim said that, without a change, the banking system could see increasing liquidity problems while companies failed to access financing for long-term planning and operations.
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