Banks are currently flush with capital and competing to cut lending rates. But this is not necessarily good news for businesses, because even with lower rates, most companies still cannot access loans.
Enterprises Struggle to Get Loans
Nguyễn Nam Hải, General Director of the Vietnam National Coffee Corporation, said that 65% of the corporation’s coffee plantations are old and urgently need replanting. Yet because of overdue and bad debts, banks have closed the door on new lending. For the corporation and the coffee sector as a whole, the key issue is not lower rates but the ability to access capital.
Although agriculture is one of the five priority sectors for credit, many agricultural exporters say they have not been able to borrow at all over the past year. The Department of Agro-forestry and Fishery Processing and Salt Production has recently urged banks to restructure old loans and provide new ones at lower rates. Banks are also being asked to prioritize timely, adequate credit at around 9% annual interest to help companies buy, process, and export products such as coffee, tra fish, and rice.
It is not only agricultural exporters who face this squeeze. Auto and auto-parts manufacturers are also in trouble. In an open letter to the Prime Minister, Bùi Ngọc Huyên—Chairman of Vinaxuki—stated that the biggest challenge for his company is lack of capital. He explained that banks had valued pledged assets as mere scrap metal, preventing the company from borrowing an additional 400 billion VND against those assets.
Even though the State Bank of Vietnam (SBV) aims to direct credit into five priority sectors, SBV data show that in 2013 real estate credit grew the fastest—nearly 37%—while lending to other sectors lagged. The reason is clear: even when the property market is sluggish, banks still have collateral to secure real estate loans, whereas lending to production carries a higher risk of bad debt.
According to Cao Sĩ Kiêm, Chairman of the Small and Medium Enterprise Association, only a few dozen percent of small and medium enterprises can access bank credit. So even if interest rates continue to fall, the impact on SMEs is limited. He also noted that current rates, though lower than before, are still nearly twice the average return on capital (about 6–7%). That is why the Department of Agro-forestry and Fishery Processing and Salt Production has proposed cutting the preferential investment rate for agriculture from the current 11.5% to 5–6% per year.
Banks Turn to Government Bonds Amid Fear of Bad Debt
By the end of January 2014, total bank credit had actually contracted by 0.5%. Some banks saw even steeper drops: at OCB, credit growth in January was down 0.8%.
Phạm Linh, Deputy General Director of OCB, said deposits have continued to rise even as lending rates fall. Despite this surplus, the bank remains cautious and lends only to the best-qualified clients.
According to Trần Du Lịch, a member of the National Financial and Monetary Policy Advisory Council, banks hesitate to lend because they fear new bad debts. Thus, lower rates alone do not guarantee businesses access to funds.
Economists also warn of a worrying trend: banks are channeling money into collateralized consumer lending and government bonds. This diverts capital away from production, effectively crowding out productive credit. In fact, since the start of the year, banks have snapped up almost all government bonds issued. After just four auctions, the State Treasury has raised over 31.5 trillion VND in bonds.