In fact, the State Bank of Vietnam as the highest authority tasked with monetary and financial issues of the economy has long been aware of what enterprises are facing, and has vowed to take measures to pull down the interest rate to make life easier for the business circle. Governor Nguyen Van Binh in a press conference in Hanoi on Monday announced a decision forcing all banks to adhere to a new deposit interest rate ceiling of 13% a year instead of 14% that had been in place for months. The governor, as quoted by local media, also unveiled a road map to pull down the interest rate by one percentage point each quarter so as to bring the ceiling deposit rate to around 10% next year.

But the problem persists, as if the prescription given by the central bank lacks curative effect. According to local media, access to lower-cost capital for most enterprises remains extremely difficult.

“Enterprises are not happy, and the market is not excited after the Governor announced the rate cut,” says Tuoi Tre. For a long time now, enterprises are no longer interested in rate-cutting programs launched by banks, simply because very few of them can be eligible for the cheaper funds, according to the paper, explaining the lukewarm attitude of enterprises toward the rate cut.

Vnexpress, in criticizing the central bank’s monetary management, says the approach of imposing ceiling deposit rates does not help reduce lending rates for enterprises. The online newspaper suggests that the central bank impose the output rate rather than the input rate so as to encourage competition among banks on one hand and ensure a reasonable capital cost for borrowers on the other.

As the deposit rate is capped, smaller banks cannot mobilize funds and thus have no capital to ensure healthy liquidity and to lend to their clients, while bigger banks enjoy ample funds that they use to lend to smaller credit institutions on the inter-bank market at rates as high as 40% a year, says Vnexpress. Such a tool on the part of the central bank has choked off competition, while clients still have to borrow money at very high rates.

At the aforesaid meeting in HCMC on Tuesday, businesspeople complained that most of them had to borrow funds at annual rates of some 20% a year or higher, rather than the soft rate of 15%-16% as announced by banks, Tuoi Tre reports. A representative of Dai Phat Group said the company had just taken out a loan of VND30 billion, and would have to pay an interest sum of US$6 billion a year.

Nguyen Trong Hanh, deputy director of the HCMC Tax Department, said that banks only cared about lending each other via the inter-bank market rather than granting credits to enterprises, adding “recent announcements of rate cuts by banks are just lip services.”

The taxman also showed concerns that due to the lack of funds and the high capital costs, up to 2,500 enterprises in HCMC, or 15% of the total, reported losses in February alone, says Sai Gon Tiep Thi. The newspaper also quotes Nguyen Hoang Minh, an official of the central bank based in HCMC, as admitting that “banks focused too much on liquidity rather than supplying funds for enterprises.”

Tuoi Tre goes further to criticize the monopolistic role of banks in the economy. The paper charges that banks have many sources of cheap funding, so the capital cost at banks average out at only 10%. “They will make big profits when lending at 15% a year, but most of them charge clients at over 20%,” says the paper.

“Over the past time, in order to stabilize prices, local authorities have taken many measures to boost inventory of commodities, but capital as a special commodity is being floated,” says Tuoi Tre. “While many enterprises have to register input costs and selling prices of their products, banks have all the freedom to fix their lending rates.”

On the sidelines of the meeting between HCMC leaders and enterprises on Tuesday, the HCMC Association of Small and Medium Enterprises reported that over 60% of its members did not have enough capital to maintain business. Pham Ngoc Hung, vice chair of the association, proposed that the central bank put a cap on the lending rate rather than the deposit rate to help businesses survive tough times, according to Lao Dong.

Given the road map on reducing interest rates as announced by central bank governor Nguyen Van Binh early this week, the preventively high capital cost will remain until this year’s end and into next year, meaning the struggle with the high capital cost will be a long-lasting ordeal for enterprises.