Businesses prefer offshore loans because of low interest rates Though domestic lending interest rates have decreased sharply since 2014, Vietnamese businesses are still seeking offshore loans because of the lower capital needed.   The HCM City Branch of the State Bank of Vietnam (SBV) reported that 750 city businesses had borrowed medium- and long-term loans by the end of 2014, worth $6.25 billion. Of the borrowers, 66 percent were foreign invested enterprises (FIEs) and 34 percent Vietnamese. Outstanding loans by the end of 2014 were $3.65 billion, of which $3.5 billion was provided in cash, and the remaining in goods. The figure represents a 9.7 percent increase in comparison with the end of 2013. Nguyen Hoang Minh, deputy director of the HCM City Branch, said the FIEs’ loans were ones in which subsidiaries in Vietnam borrowed money from their holding companies. Meanwhile, Vietnamese enterprises borrowed from foreign partners to buy machines and equipment on instalment. In some cases, businesses and individuals borrowed money from relatives overseas, and in others, businesses borrowed money from foreign banks with a government guarantee. Minh noted that domestic businesses preferred offshore loans because foreign sources have offered to lend money at lower costs than Vietnamese. In most cases, foreign lenders require interest rates of 1-2 percent per annum. Meanwhile, they have to pay 4-5 percent for foreign currency loans from domestic banks. A banker noted that it was not easy for Vietnamese businesses to access bank loans in foreign currencies. They need to show their ability to pay debts in foreign currencies, and they must be businesses eligible for foreign currency loans as per requirements set by SBV. However, Minh believes it is difficult for Vietnamese businesses to approach foreign banks. There are no consultancy firms which act as brokers connecting Vietnamese businesses and foreign commercial banks. Only large and well-known corporations can access bank loans from overseas. Offshore loans and foreign debts are “delicate issues” in Vietnam. Local newspapers once caused a shock to the public when noting last year that no state agency knew the amount of foreign debts incurred by Vietnamese businesses. An SBV senior official said the watchdog agency has a close eye on businesses’ borrowing and is applying necessary measures to ensure that total foreign debts will not exceed the limit set by the Prime Minister. The official noted that it is impossible and not advisable to prohibit businesses to borrow money from foreign sources just because of risks warned by analysts. He said businesses need to seek capital from all sources to optimize their business plans. TBKTSG