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NEW UPDATES Asean Affairs   4 June 2014  

Experts urge banks to lower cost of lending for local businesses

HA NOI  (VNS) — There is a need for banks to cut the lending interest rates further to make bank loans more accessible, and to rethink the implementation of the real interest rate policy.

This message was delivered at a workshop held by the State Bank of Viet Nam in Ha Noi last Saturday.

"Vietnamese enterprises are bearing too high capital costs that reduce their competitive and productive capacities in exports and domestic markets," said Luu Duc Hai at the Development Strategy Institute under the Ministry of Planning and Investment.

Although Vietnamese exporters have privileged interest rates between 8 and 10 per cent yearly, the borrowing costs are estimated to be 1.4 to 2 times higher than in some regional countries. The exporters in China pay only 6.6 per cent per year, while those in Thailand and Malaysia pay 6.9 per cent and 4.9 per cent respectively.

On the other hand, Vietnamese producers in non-priority sectors are paying between 10 and 13 per cent. This is a big disadvantage if they have to compete with foreign direct investment (FDI) enterprises in the domestic market.

The FDI enterprises from the US, Japan, South Korea and Taiwan have to pay only between 1.5 and 4.7 per cent annually to gain financial sources for their business in Viet Nam.

Hai said that if the lending interest rates are not cut, it would be hard to score high and achieve sustainable economic growth in the medium and long term.

Balancing interests

Experts said that a practical implementation of the negative real rate of monetary policy was likely to be the answer.

The real interest rate is the rate of interest a depositor or an investor expects to receive after allowing for inflation. It is used to measure the purchasing power of interest receipts and is calculated by adjusting the nominal rate charged by taking inflation into account.

Accordingly, a positive real interest rate is a situation when the nominal interest rate is higher than the inflation rate. A negative real interest rate occurs when the nominal interest rate is lower than the inflation rate.

Implementing a real interest rate is supposed to balance the interests of depositors or the investors and the credit system.

Viet Nam has followed the positive real interest rate, but it's unlikely to help the economy in practice because of the high accumulation of gold and foreign currencies, and the overall inflation.

Hai said that using the overall inflation rate to decide the positive real interest rate unnecessarily pushed up deposit interest rates in the banking system.

When the inflation rate was still high, maintaining the policy of positive real interest rate would further fuel the growing lending interest rate. This kind of practice would harm enterprises, experts said.

Under the current circumstances, experts said a negative real interest rate policy would cut the lending interest rate, and create agreement and sharing among depositors, banks and enterprises.

In 2008, Viet Nam maintained a negative real interest rate policy to deal with the 22 per cent inflation rate. A similar situation happened with the US in 2004 and with China in 2004 and 2008.

The credit growth of Viet Nam's banking system reached 1.31 per cent between January and May 23; the total supply was an estimated 5.28 per cent higher than the end of last year; and the total mobilised capital increased by 4.2 per cent.

The country's consumer price index in May inched up 0.2 per cent against the previous month amid rising supply and low demand, according to the General Statistics Office. Compared with the first five months of 2013, the index rose by 4.72 per cent.

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This year in Thailand-what next?

AseanAffairs   04 January 2011
By David Swartzentruber      

It is commonplace in journalism to write two types of articles at the transition point between the year that has passed and the New Year. As this writer qualifies as an “old hand” in observing Thailand with a track record dating back 14 years, it is time take a shot at what may unfold in Thailand in 2011.

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