Revitalizing Capital Absorption for Businesses

According to statistics, credit growth in Vietnam has only shown signs of renewed growth since June. By the end of July, credit growth was just 4.6%, down by about half from the same period of 2022 (expanding 9.54%). This indicates that capital absorption is weak.

To facilitate financial flows for businesses, it is imperative to reduce interest rates further, thereby easing their access to loans

Consistent solutions

The State Bank of Vietnam (SBV) has closely directed the synchronous application of many comprehensive business support policies that affect both supply and demand. These policies include exemption and reduction of taxes, fees, and charges, financial and credit support, export promotion, and supply chain protection. With the close and drastic supervision of the government and the timely participation of central agencies, difficulties and challenges have been gradually addressed, and confidence has been restored in the business community.

Ms. Ha Thu Giang, Director of the SBV Credit Department for Economic Sectors, stated that the SBV directed credit institutions to facilitate real estate investors, construction contractors, home buyers, and construction material manufacturers to access credit to increase their capital turnover and liquidity for the real estate market. The SBV also launched a credit package of VND120 trillion financed by commercial banks with a lower lending rate by 1.5-2% of the average ordinary lending rate for investors, buyers of affordable social housing, and old apartment restoration and reconstruction projects.

The SBV directed commercial banks to launch a VND15 trillion loan program for the forestry and fishery sectors, financed by banks, with a lending interest rate at least 1-2% lower than the average ordinary lending interest rate of the same term of lending banks. The SBV also instructed credit institutions to concentrate capital sources to fund business needs in key agricultural sectors such as rice and coffee. The SBV advocated restructuring repayment terms and keeping the debt group unchanged as per Circular 02/2023/TT-NHNN to support customers in difficulty to have better and longer repayment plans without being sent to a bad debt group. This will enable customers to access new loans for business and consumption, thus boosting economic development. By the end of July 2023, nearly 97,000 customers had their repayment terms extended for VND96 trillion of loans and their credit status unchanged.

However, Dr. Nguyen Minh Thao, Director of the Research Department on Business Environment and Competitiveness at the Central Institute for Economic Management (CIEM), explained that there are still bottlenecks to capital absorption in the economy. He noted that there are some existing limitations such as the ineffective 2% interest rate support package. It is difficult for enterprises to access capital from the SME Development Fund and the SME Credit Guarantee Fund. The high social insurance premium rate (32% of the employee’s salary, of which the employer pays 21.5% and the employee pays 10.5%), coupled with rising input and logistics costs, has added barriers and burdens to businesses. The excise tax refund is also being delayed, exposing the business environment to potential risks.

Several credit institutions have participated in the VND15 trillion credit program to support businesses that produce and process seafood and forestry products

Quick troubleshooting solutions

Removing difficulties in business, maintaining and restoring business health are top priorities. Weakening capital access and absorption is a matter of special concern. Quick, effective solutions are needed to tackle these difficulties.

To unlock financial flows for businesses, it is necessary to further lower interest rates to make it easier for them to access loans. Continued support for debt restructuring, bond repurchase, and credit packages should be applied. Other fundraising channels such as securities and corporate bonds should also be restored. On the other hand, borrowing conditions should be eased for companies to access credit from the SME Development Funds and the SME Credit Guarantee Fund. The Vietnam General Confederation of Labor recommended reducing trade union fees. The Ministry of Finance (General Department of Taxation) directed and supervised tax refunds to ensure timely refunds. Business institutions should be reformed, and compliance costs should be slashed for enterprises.

In addition to continuing to effectively implement support packages for workers, such as housing rent support and preferential loans for job generation through the Vietnam Bank for Social Policies, it is essential to carry out the 2% VAT reduction support package. Dr. Pham The Anh, Dean of the Faculty of Economics, National Economics University, recommends enhancing credit access and capital absorption for enterprises by encouraging private investment through further slashing lending interest rates, accelerating public investment with a focus on infrastructure projects, developing social housing to meet end-buyer needs, and building new public schools to meet social needs. It is also necessary to stimulate consumption through social security subsidies to poor households and unemployed workers, increase taxable income/reduce personal income tax, and reduce value-added tax (VAT) on domestic essential goods.

Mr. Do Viet Chien, Vice Chairman and General Secretary of the Vietnam Real Estate Association, identified three issues that need to be resolved: legality, capital, and administrative procedures. Legality is the biggest barrier due to overlapping legal documents that hinder policy implementation. According to statistics, about 70% of the difficulties of real estate firms are legal issues.

According to Standing Deputy Governor Dao Minh Tu of SBV, the immediate solution is for commercial banks to further cut lending and deposit interest rates while ensuring financial safety for banks. Borrowing procedures should be streamlined, and borrowing should be stimulated because companies need their support and sharing. In essence, a commercial bank is also a business that mobilizes people’s money for lending to others. Therefore, commercial banks must ensure capital adequacy and system liquidity.

Furthermore, banks need to apply the policy on debt restructuring, extension, and postponement as per Circular 02/2023/TT-NHNN of the Governor of the State Bank dated April 23, 2023. They should foster information technology applications to banking products and services to reduce costs. Banks should actively dialogue with businesses, local authorities, and relevant agencies to strengthen exchanges on better business support.

Deputy Governor Dao Minh Tu said that the SBV will continue to operate a flexible, reasonable, and effective monetary policy in line with Vietnam’s conditions in the coming time.

By Quynh Chi, Vietnam Business Forum