Local Businesses Thirst for Capital

Capital is a crucial element for any companies to expand and scale up production capacity, productivity and competiveness. Thus, the accessibility to capital source is very important to all companies. In the current context of economic slump, the concern is what companies do to access capital sources and how bank will support companies.

 

The State Bank of Vietnam applied many measures to tighten monetary market from late 2007 to September 2008 and businesses complained that they faced numerous difficulties in approaching capital. Since December 2008, the monetary policy has been loosened but companies still encountered certain hardships in mobilising capital.

 

According to a recent survey conducted by the Vietnam Chamber of Commerce and Industry (VCCI), up to 74.47 per cent of enterprises agreed that banks were their main channel of capital mobilisation. The obstacle is not resulted from their overdue debts and the ongoing global financial crisis. Banks, meanwhile, feared that the economic recession might send banks to a collapse if it was longer than expected. Then, banks will lose capital. Hence, in 2009, commercial banks tightened borrowing conditions and procedures, with more attention paid to solvency of borrowers.

 

Besides, banks dislike lending small-sized enterprises, mainly operated by households, because they lack professional knowledge, possess backward technologies and adopt unprofessional financial reporting. At the same time, the slump of the stock market, a main channel of capital mobilisation for many companies, triggered more difficulties for enterprises to mobilise capital.

 

According to economists, in the context of loosened monetary policy, in addition to lower market interest rate, companies are also granted interest rate subsidy of 4 per cent on bank loans, launched by the Government. The response to this support package varies from bank to bank. Large-scaled commercial banks, especially State-owned, are actively carrying out the support programme while small commercial banks showed their hesitancy because they found difficulties in selecting beneficiaries, controlling lending as well as interest rate risk in the event of failure to control the capital-using purpose of borrowers. Any economy-regulating policy of the Government has certain adverse side-effects. The question for banks is to limit adversities.

 

To valorise the development of the Vietnamese stock market in the course of global financial crisis to create an effective fund-raising channel for enterprises, in 2009, more companies need to go public. Many said, to increase financial capacity and foreign reserve, banks should be allowed to sell less than 5 per cent of stakes to a foreign bank without seeking a permit from the State Bank. At the same time, the holding ratio of foreign investors in Vietnamese banks should be raised to 35 per cent to increase the attractiveness in the event of declining foreign-financed flows.

 

Income tax on financial investments on the stock market should be delayed further (recommended 1-2 years, or until the market becomes stable). Vietnam should also consider setting up a securities market stabilisation fund where there is the presence of the State, domestic and international financial institutions.

 

Another solution is to continue cutting interest rate and orienting the market to stimulate investments for production of goods and services of high market demand. Credits should be prioritised to agricultural field, farm produce processing enterprises, cleaning enterprises, irrigation companies, consumer goods companies and labour-intensive handicraft enterprises.

 

Without proper stimulus to consumption and production, the economic recession will worsen. Under the current context, banks need to operate with closer ties with the economy and their clients rather than with the stock market only. They should pay more attention to the system safety. They should also see the Prime Minister’s Decision 131 dated January 23, 2009 on using VND17 trillion (US$1 billion) to subsidise partial interest rate for institutions and individuals as a golden opportunity to lend VND620 trillion of interest-subsidised credits to companies in the country.

 

In addition to bank loans, enterprises could also mobilise capital by other methods. Firstly, they can issue corporate bonds, which not only provide capital for them to expand production and business activities but also advance the domestic capital market and reduce reliance on medium and long-term bank loans. Certainly, they will suffer less financial risks. Secondly, they can mobilise capital from employees. Thirdly, they can raise funds from their customers. Fourthly, they can join hands with domestic and foreign companies. According to experts, to approach and mobilise capital sources at the moment, enterprises need to carry out practical solutions such as concentrated investment, feasible business planning and wider cooperation with foreign banks.