VINACHEM

HCM CITY — Many small and medium-sized companies are considering shifting to other businesses or cutting production levels because of the high interest rates on bank loans.

Economic experts warned that such rates could severely affect economic growth and end up stifling business production.

Tran Tan Thuat, general director of Sao Xanh Co Ltd, said his animal feed factory in Dong Nai Province operated at only 70 per cent of capacity.

"At this time, it is not easy to achieve a profit of 2 per cent, so how can we dare borrow from banks at an interest rate of 17-18 per cent to invest in production," Thuat said. "Many companies have shrunk their operation scale or cut back on production, waiting for a better time."

Thuat's company had stopped making large investments that were planned for this year.

Construction of a VND100 billion (US$5.26 million) factory in Dong Thap Province began in 2008, but was stopped after three to four months due to the global recession.

Thanks to the Government's preferential policies, his company planned to resume construction but has decided to wait because of the uncertain economic climate and high interest rates.

Cao Tien Vi, chairman of the board of directors for Sai Gon Paper Joint-Stock Company, said higher input costs and interest rates had lowered profits and made it more difficult to do business.

Also stalled is a plan by Oseven Corporation, which is based in southern Binh Duong Province, to build four base depots specialising in painting wood and distributing wooden products and materials in the country's four largest cities, Ha Noi, HCM City, Can Tho and Da Nang, said Nguyen Thanh Phong, company director.

The company has also had difficulty accessing credit to buy materials for paint production.

Kevin Tho, director of Tho Co Ltd, said his company did not have enough money to import 10,000 tonnes of wheat, beancakes and other materials to sell to domestic animal feed manufacturers.

Customers who need these raw materials were buying from other suppliers, he said.

Nguyen Gia Vinh, director of the Binh Phuoc-based Nguyen Gia Company, said his company had turned down export orders because bank interest rates were too high.

His company incurred a big loss fulfilling an export order after fluctuating input costs, including interest rates on loans.

Last year when the Government offered preferential interest rates, the company had fewer orders.

Many gas trading companies are also suffering because they are required to maintain a stock of least 300,000 cylinders.

For example, a gas business in Dong Nai Province has sold its warehouse and is selling its gas distribution and gas filling system.

Due to higher lending interest rate, some businesses are raising product prices.

Businesses

Bui Nhu Viet, director of Long Viet Wood processing company, said some importers had shifted to Thailand and China after Vietnamese producers announced to increase.

"We hope the lending interest rate will fall soon. If we can borrow at an interest rate of 12-14 per cent per year, we will not have to raise our sale prices, and will be able to maintain competitiveness with foreign rivals," said Bui Thi Minh Tu, director of Tri Long International Co Ltd.

In response to corporate difficulties and the State Bank's urging late last week, several commercial banks began lowering lending rates by about 2 percentage points.

For example, Asia Commercial Bank yesterday reduced its lending rate to 14 per cent from15-16 per cent. Meanwhile, the Viet Nam Bank for Agriculture and Rural Development, Bank for Investment and Development of Viet Nam and Mekong Housing Bank announced last Saturday new lending rates would be 13-14 per cent. — VNS