Capital Thirst Rocks Vietnamese Businesses

According to economic experts, Vietnam’s economy has fallen into the state of stagflation - a situation in which the inflation rate is high and the economic growth rate slows down and unemployment remains steadily high. This is the gravest concern of all economies. This gives rise to the imbalance or disruption of capital flows, sabotages all efforts to rescue business, and forces many businesses to the brink of bankruptcy.

 

The Vietnam Association of Seafood Exporters and Processors (VASEP) said its member seafood companies are in critical need of capital for production and business operations. VASEP recently conducted a survey on capital needs of its members. More than 90 percent of respondents need to borrow capital, with the least of VND10 billion and the most of VND1,400 billion, to refund processing, production and breeding activities. In the second quarter, many urgently need to borrow from VND10 billion to VND500 billion.

 

At a recent seminar on export prospects held in Ho Chi Minh City, Mr Tran Quoc Manh, Vice Chairman of the Ho Chi Minh City Handicraft and Wood Industry Association (HAWA), said the handicraft and wood industry faces numerous difficulties because of volatile exchange rates and rising input costs. Still, up to 70 percent of enterprises in this industry have small and medium operating scales with slow capital turnover and low productivity. Hence, they do not create high-value products.

 

A representative from a wood company in Binh Duong province said economic slowdown is sending many enterprises to the brink of bankruptcy. Besides, many cannot maintain full operations because of capital shortage, while they still have to pay full wages to workers and lending interest to banks.

 

Garment and textile companies are also in the same situation as they are not able to mobilise capital for major projects in 2012. Giants of this industry are also very careful about investment plans.

 

A representative of a garment company pressingly said his company is struggling to survive since it borrowed high-rate medium-term loans. Many companies are facing bankruptcy, although they reportedly make profit of VND100-200 billion, because this amount is not enough to offset even lending interest. Worse still, rising input costs increase their burden. Moreover, asking for new loans is now very difficult for most businesses.

 

While domestic companies go to the wall, foreign-invested firms are still living healthily thanks to exclusive preferential policies of the State and funding from parent companies. Borrowing at foreign banks is much cheaper than in Vietnam. Indeed, it is very difficult to find another country with interest rates as high as Vietnam. 

 

On April 11, the State Bank of Vietnam (SBV) decided to lower the deposit interest rate ceiling to 12 percent per annum. In addition, the central bank slashed regulatory rates by one hundred percentage points. Following the move, many lenders like Eximbank, Techcombank and HSBC cut lending rates for corporate and personal borrowers. At present, many banks have brought down lending rates, with the lowest at 12 percent per annum.

 

Rate cuts are a good sign for the business community, but many businesses are not happy at all. A director of an iron company said when he was learned about rate reduction policies, he went to a regular bank to ask for a new loan, but was told to settle old debts first. However, its assets are being used as the mortgage for previous loans and it seems to have no chance to access the so-called cheap loans. Banks are very quick at increasing interest rates but seem quite slow at lowering them.

 

According to experts, a rate cut is very much expected by businesses but most of them seem to fail to meet lending criteria. Dr Nguyen Van Trinh, Vice Rector of Economics - Law University (Vietnam National University, Ho Chi Minh City), said there are a lot of reasons for enterprises’ inaccessibility to bank loans. First of all, they are struggling with growing inventories as sales shrink. If they cannot settle old loans, how can they ask for new ones? Secondly, the reduced rates remain too high for most companies in the current context.

 

Trinh said this is a very tough time for most businesses. Thus, to help them move out of hardship, it is vital to reschedule loans and bridge loans to support businesses, rather than just lowering lending rates.