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

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

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

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

Nguyen ThiTuyet, Director of Hoang Khuyen Trading Company, a manufacturer ofglassware products, said that due to their limited knowledge aboutprocedures, many small and medium enterprises were unable to presenttheir business plans to banks. They also did not have big assets to useas collateral so they were unable to access bank loans. In addition,most enterprises which have yet to repay their debt, are not able to askfor more loans at lower rates.

DeputyGeneral Director of Vietcombank, Nguyen Danh Luong said that in linewith the central bank’s directive, Vietcombank has reduced both depositand lending rates. For priority sectors, Vietcombank cut the rate onshort-term VND loans from 8 percent to 7 percent and capped the rate onmedium and long-term loans at 10 percent. According to Dr. Nguyen TriHieu, although a low interest rate is not a decisive factor, it isdefinitely a motivation for enterprises to borrow more, therebyaccelerating credit growth.

Dr.Tran Hoang Ngan, a member of theNational Financial and Monetary Advisory Council, said that enterpriseswere still struggling to secure medium and long-term loans. Therefore,if banks could slash their interest rates further, it would encourageenterprises to borrow. Ngan said enterprises wanted interest rates onmedium and long-term loans to be lowered to 5-6 percent, or 7 percent atthe maximum so that they could invest in new machines to manufactureproducts.

According to Cao Sy Kiem, President of theVietnam Association of Small and Medium Enterprises, after recent cuts,interest rates would no longer be a barrier to enterprises’ operationsand what was needed now was a policy to boost aggregate demand so thatenterprises 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 formulateappropriate business plans to fully utilise the new policy.

DeputyGeneral Director of Maritime Bank Tran Xuan Quang said medium andlong-term capital was always a difficult problem for a bank becausedeposits were mainly short term. With short-term deposits accounting fora large proportion, if banks offer long-term loans, they will likelyface a liquidity crunch in a case of instable market. Quang said that itwas necessary to develop a medium and long-term capital market forenterprises in order to reduce the pressure on banks and helpenterprises to be more proactive about their long-term business plans.-VNA