Vietnamese Businesses to Benefit from Increased Credit

November 4, 2013 Posted by Vietnam Briefing Reading Time: 2 minutes

Nov. 4 – The State Bank of Vietnam, which has sought to boost the economy through loosening the country’s credit policies, will allow commercial banks to increase their loans by up to 20 percent through the end of this year – a move that will benefit companies that are positioned to take advantage of the new credit environment.

The availability of credit has also been enhanced by a downward trend in interest rates, which have fallen 3-5 percent during the first nine months of 2013 from 13-17 percent to 11-13 percent.

Commercial borrowers have been able to acquire even cheaper credit, such as a 9 percent loan offered by Saigon Thuong Tin Commercial Joint Stock Bank, which has already issued over VND2 trillion (US$94 million) in loans this year, or the Techcombank, which charges an annual rate of 8.2 percent through a soft loan program.

“Banks would do this when they know that their loan will be used effectively and for the right purpose and the company’s revenues are adequate to repay the principal and interest,” said the director of a Ho Chi Minh City-based commercial bank.

The effects of this increased credit can already be seen with the number of new businesses entering the market increasing during the first nine months of the year. Ho Chi Minh City (HCMC), for example, has seen an influx of over 20,000 new businesses this year. According to the Tax Department, 5,200 companies in HCMC also resumed operation after temporarily closing due to poor performance over the past few years.

Despite these positive signs, Vietnamese enterprises still face challenges.

“Businesses and production still have a lot of difficulties because consumption in the market is still at low levels and companies’ ability to absorb bank loans is still limited,” said a representative of the State Bank of Vietnam.

In response to the decrease in loan rates, deposit rates have also fallen, which encourages greater consumption over investment. If the rates continue to fall, it is hoped that this trend will result in greater domestic demand, further strengthening the country’s economy and businesses’ ability to utilize the positive environment.

The government has also offered several new loan incentives this year, such as an extension on the maximum lending period to 36 months for export credit on certain goods, including fruits and seafood. Such loans are designed to maintain the country’s competitiveness in key areas such as export and local production.

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