Banks and Businesses Join Hands to Alleviate Difficulties

The economy of Vietnam and the world are suffering from many difficulties. This poses challenges; Vietnamese businesses, to survive, need to have a flexible and reasonable financial management strategy. Mr Pham Quang Thang, Deputy CEO and Director of the National Credit Approval Council of the Vietnam Technological and Commercial Joint Stock Bank (Techcombank) shared the opinion with the Vietnam Business Forum on the sidelines of the conference on "Corporate Financial Management - Opportunities and Challenges", recently held by Techcombank in Hanoi. Anh Phuong reports.

 

According to research by the auditing company Ernst & Young Vietnam, currently, there are 42 percent of the companies listed on HOSE failing to submit financial reports on time. Other reported violations also account for a high proportion of between 8 percent and 31 percent. The main reason is that businesses lack proper views on corporate finance functions; besides, the businesses are confused about the functions between the accounting department and the finance department. "

 

In addition, in terms of expertise, many Vietnamese businesses have not set up financial management function and distinguished the roles of the Chief Financial Officer from the roles of the Chief Accountant Officer. In addition, the businesses also lack the supporting tools necessary to ensure the effective financial management. It is obvious that, except for a number of joint ventures and enterprises with 100 percent foreign capital, the majority of businesses have not established their own financial management division and nominated a chief financial officer with separate functions. According to a full research by the International Finance Corporation (IFC), the State Securities Commission of Vietnam said that 80 percent of companies surveyed have an average level of management. It is known that many business representatives at this conference also worry about unclear distinction between financial functions and accounting functions, which causes much overlap, difficulties and negative impacts on overall business performance. Therefore, the businesses often face difficulties in finance activities; for example, many activities could not be achieved on time, customers pay late, and the businesses can not check, monitor financial planning, and lack working capital.

 

Through this conference, some smart financial solutions are that the businesses need to have reasonable financial management strategies to direct their businesses operation. Another emerging issue that many businesses have encountered is that in recent years, many businesses face many difficulties when investing in areas including real estate, in which the businesses do not have expertise and management skills; meanwhile, the businesses overlook their core mission as a producer. So if at the beginning, the role of financial supervisor was appreciated, it would be useful to help businesses limit the above-mentioned difficulties.

 

If the businesses are still concerned, the conference could help them learn experiences from the representatives of the Son Ha International Corporation. Specifically, the company made two divisions of accounting and finance department in 2010. The finance department is responsible for preparing investment plans and measuring their efficiency. After the plans are put into operation, the staff will analyse and evaluate quarterly and monthly problems that arise, and propose reasonable adjustments. This will make corporate financial management activities be more efficient.

 

As noted by Techcombank, many customers admit that currently, many banks continue to offer the interest rate incentives to address the capital stagnation. In the area of personal consumption, many banks offer credit packages at low interest rates of about 6 percent to 9 percent per year while interest rates for real estate sector are even lower, even at 0 percent interest rate for customers. Loan interest rates for businesses also fell significantly. According to data from the State Bank of Vietnam, short-term interest rates for business operation range from 9 percent to 11.5 percent per year and the medium-and long-term interest rates range from 11.5 percent to 13 percent per year. Compared to the end of the April 2013, the interest rates decreased by about 2 percent.

 

However, the core problem of the businesses is not related to interest rates, because the interest rates have been adjusted fairly and reasonably. The businesses are mainly concerned about implementation, lending process and target borrowers of the banks. Currently, many businesses borrowing money from banks are small and medium-sized enterprise not listed on the stock exchange so their transparency are not high, business information is not clear, and the financial statements are not professional, which cause difficulties for the bank to evaluate collateral. In addition, banks are more conservative in assessing loan applications for fear of bad debts. As a result, businesses have difficulty or simply cannot access loans.

 

So, to suggest solutions for businesses, the banks need make assessment, categorize businesses into different groups, and based on the list of specific criteria, the banks will give limits to help businesses access loans to meet requirements and characteristics of each business.

 

As a part of this business strategy, Techcombank recently has made a risky decision on reducing lending rates at 8.5 percent per year for small and medium sized enterprises across all industries. It is known that many banks are adopting a very low interest rate, such as a credit package of 7.77 percent per year of the VIB, 6 percent per year of VPBank, 7.5 percent per year of Vietcombank, but they all have specific regulations; for example, the interest rate is only applicable in the first few months, then floated in the market. In addition, such the credit packages just target a specific group of businesses and individuals that have demands on consumption, housing repairs and the credit limits are not large enough.

 

The main advantage of the credit packages of Techcombank is that the interest rate is fixed at 8.5 percent and reduced for all small and medium sized enterprises. The rate will be applied for 2 months, from early July to the end of August in 2013. Besides the scale extended to all business sectors, this super-low interest rate is also applied in whole lending periods. It is also regarded as the solution of the government and the State Bank of Vietnam to help businesses recover and gain competitiveness under very tough situations for financing at this time.