Lending squeeze

Sunday, May 18, 2008
Want a bank loan? Be prepared for costly extra fees on top of towering interest rates.

Amid the credit crunch, would-be borrowers not only have to worry about being rejected or high interest rates, they also have to worry about surprise fees like “capital arrangement” and “credit management” charges.

Phuong, from Ho Chi Minh City’s Tan Binh District, said that if she borrowed from Techcombank she would be charged 1.65% a month in interest plus a capital arrangement fee of 0.5% on the total loan amount.

If she borrowed from the Southeast Asia Joint Stock Bank, she said she would have to pay a slightly lower interest rate of 1.5% per month plus a capital arrangement fee of 1.5-4.5% and a credit management fee of 0.9-4.8% depending on loan terms.

The longer the terms, the higher the fees, Phuong said.

An employee at another commercial bank who wished to remain unnamed said if the additional fees were taken into account, the “actual” monthly interest rates on loans from these two banks might reach 1.8% to 1.9%.

Tide turns

President of Oriental Commercial Joint Stock Bank (OCB) Vo Van Chau said one year ago, commercial banks had tried to “snatch” customers from each other by offering low interest rates on loans.

But commercial banks now are calling in repayments and screening loan applicants more closely.

The president of another commercial bank who spoke on condition of anonymity said it was a general increase in demand for loans – rather than a bank cash shortage – that was pushing up loan interest rates.

“At the moment, loan interest rates are no longer tied up with deposit interest rates,” he said.

“Rather, they depend on lending supply and demand.”

Flooded with an overwhelming demand for loans, the banker said many commercial banks have stopped lending for real estate investment and consumption purposes to devote loans to businesses that need funds for production.

Meanwhile, businesses across all sectors are suffering from serious capital shortages due to rising production costs.

According to the Viet Nam Association of Financial Investors (VAFI), raw material prices have jumped 20-40% so far this year, forcing businesses to increase their cash reserves.

Bank loans are now so difficult to get that many businesses have resorted to borrowing from their own employees and other sources at bank rates.

VAFI said the central bank’s capping of commercial banks’ credit growth at 30% this year has made it hard for banks to lend to new customers as well as old ones.