Retail borrowers find bank interest rate hikes too steep

Interest rates for businesses are around 9%, with both being up by around 2 percentage points since the beginning of this year.

The State Bank of Vietnam has increased interest rates twice since September, the latest being on October 24.

Hien, owner of a boarding house in the central province of Khanh Hoa, said the interest rate hikes have been a blow because on her loan of VND5 billion ($201,600) she has to pay an additional VND15 million a month.

She said she had mistakenly thought the floating rate would be only 9.5-10.8% after the preferential interest rate period ended.

She had borrowed to buy the boarding house to lease to tourism workers in Nha Trang city for monthly rentals of VND1.5-2 million per room. But tourism in the city has not fully recovered after the Covid-19 pandemic, and so the occupancy rate currently stands at only 50%.

To earn enough to manage the higher interest payment, she has to run another small business transporting construction materials, mainly steel. But sales of construction steel dropped by 50% in October, and so that business is also languishing.

Hien wants to sell a plot of land, but has no takers since banks have tightened mortgage terms. “I am trying my best to pay bank interest in due course so that the loan will not become a bad debt and my collateral is not seized.”

Similarly, Tinh in the southern province of Kien Giang and two of his friends are struggling to pay additional bank interest because they borrowed to buy some land nearly a year ago but have been unable to sell them after the property market slumped.

He said: “I bought a plot of land at the price of VND250 million per sao (equivalent to a tenth of an acre), hoping to sell at VND300 million. Now I am trying to sell at VND200 million … but nobody is buying it.”

Tien, one of his friends, borrowed VND800 million from a bank and another smaller loan from his relatives.

The interest he is supposed to pay has increased to 12.5% from 8%, and so the civil servant’s entire salary now goes towards paying the interest and a part of loan.

Tung, another friend of Tinh’s, currently works as a taxi driver from 7 p.m. to 4 a.m. to pay the monthly bank interest of over VND10 million and generally make ends meet.

Hang, owner of a dragon fruit farm in the central province of Binh Thuan, has also been on tenterhooks for the last two weeks after the interest on her bank loan of more than VND1 billion was hiked.

She is worried the bank will seize her collateral if she fails to pay the interest in the coming months.

“I borrowed over VND1 billion two years ago, and the interest rate surged to 13% on October 25 from 7%. For a farmer like me, it is difficult to pay additional interest of several millions of dong a month, while dragon fruit prices sometimes fall to VND2,000 per kilogram.”

The dragon fruit harvest season has not begun yet, while Hang has no other sources of income, and so she has to borrow money from her relatives and friends to pay the interest.

“Now, I am resorting to selling several sao of land, even at 30-40% lower than market prices.”

Explaining the lending interest rate hike, experts said the rates had fallen to low levels in recent years and are now increasing again, mainly due to the increase in credit demand as the economy is recovering.

Preferential interest rates for new loans for individuals with collateral have increased from 9-9.5% to 11.5-13% at private banks, and to 11.5-12% at state-owned banks.

The interest rates on unsecured loans are currently at 16-25%.

Central bank deputy governor Pham Thanh Ha said the deposit interest rate hikes help credit institutions mobilize additional resources to ensure liquidity.

Many banks fear the interest rates will not come back down anytime soon, and will depend heavily on liquidity, especially public spending by the government.

A lot of money was absorbed through the issue of government bonds, budget revenues exceeded the target and public spending has been slow, causing liquidity to dry up and putting pressure on lending rates, they explained.

But the central bank has assured that money is still being allotted to priority areas, and eligible businesses, especially in production and trading, can access loans at preferential interest rates.