Analysts said many banks have delayed cutting their interest rates despite the favorable market conditions.

The consumer price index rose by less than 1 per cent in recent months while deposit interest rates are capped at 14 per cent.

A director of a joint stock company that makes glass products in HCM City's Tan Binh District said her company still had to suffer a 23 per cent rate.

At these level profits were not enough to pay the bank interest, she said, with revenues already down since several construction works had stalled.

Tran Nganh, director of the Quyky Company Ltd, told Tuoi Tre (Youth) newspaper that his company has to pay 22 per cent on bank loans but just 19 per cent on loans from non-banking sources.

It is struggling to repay the loans and has to unduly hasten collections to meet the schedule, he said.

The company plans to minimize bank loans next year, except in cases of emergency, he said.

Lam Trong Son, director of the GosacoWood Company Ltd, said his firm is struggling with the bank loan interest rate of 19 per cent since it faces problems selling in the domestic market which account for 70 per cent of sales.

Many companies need working capital and funds for expansion but the interest rates are too high to afford, he said, adding 15 and 16 per cent is the maximum they can afford.

Cost of funds high

The director of a joint stock bank in the city's District 1 said loan interest rates remain high because the interest rate is high and liquidity low on the inter-bank market while lenders always demand collateral.

Market watchdogs said there are still signs that some banks breach the deposit interest rate cap.

Many businesses require cash soon to pay employees Tet bonus, so banks need to raise more money from the public to meet this demand, they said.

The analysts said the high lending interest rates were contrary to the Government and the central bank's policy of lowering the rates.

SBV interest rates

According to a State Bank of Vietnam report released on December 22, interest rates on agricultural, rural, and export loans now stand at 15-17 per cent.

Rates on loans given to other industries for production and trading are 18 to 21 per cent.

For non-production sectors, it is between 22 and 25 per cent.

Source: VNS