Loan interest rate in Vietnam highest globally: economist

Vietnamese companies are facing a high loan interest rate exceeding 10% while the country's inflation is only 3%, which indicates macromanagement problems, said economist Le Xuan Nghia.

In Western European countries, the lending rate is only 2.5% though inflation has surged to 10%, Nghia told a seminar in Ho Chi Minh City on capital channels amid a serious thirst for capital among Vietnamese companies.

Nghia, a member of the National Financial and Monetary Policy Advisory Council, adding that firms are in dire need of capital due to poor liquidity.

"Our council is drafting a plan to rescue the asset market under the Prime Minister's direction, aiming to reduce market tensions and gradually fix the problems," he said.

He listed signs of the capital crunch, as the economy expanded 8% and inflation reached about 3% in the first 10 months of this year, though money supply (M2) did not match the pace, increasing by about 3% only.

The economist elaborated that the country has been withdrawing up to VND1,500 trillion ($60.47 billion) since the beginning of this year, as the State Bank of Vietnam sold $26.5 billion in foreign currencies, or withdrew about VND500 trillion; and the government withdrew VND1,000 trillion by issuing G-bonds for public investment though the disbursement has been lackluster. Meanwhile, the country has not yet pumped much money into the market, he added.

The expert emphasized a higher money supply (M2) would lead to declined interest rates and further depreciation of the Vietnamese dong, however, this is necessary to reduce loan interest rates, otherwise Vietnamese companies will "die".

He proposed five solutions. First, the government deposits VND300 trillion ($12.1 billion) at four state-controlled banks to provide short-term loans. Second, part of the sum is used to establish a fund to guarantee corporate bonds, similar to the models in China and South Korea. This fund will buy the bonds, guanrantee or reguarantee them, and then gradually handle the assets in future.

Third, the government should extend the application of the definition of "professional investors" under the old Decree 153 on private placement of corporate bonds, in order to facilitate unprofessional investors to invest for one more year, before tightening this market.

Fourth, violations should not be handled via criminal proceedings, in order to prevent freezing of assets. Fifth, allow companies to restructure their debts like a commercial bank, draw up a debt restructuring plan, and make it known to the public.

Speaking at the event, Pham Minh Huong, chairwoman of leading broker VNDirect Securities, said Vietnam is a bright spot for long-term investment, per the country’s young population, growing middle class, and increasing role as the manufacturing hub of the region amid China’s prolonged “zero-Covid” and geopolitical risks.