State Firms No Longer Prime Clients of Banks

Credit balance to state owned enterprises (SOEs) in Vietnam’s capital of Hanoi is sharply sliding, totaling some VND41.5 trillion (US$2.6 billion) so far, accounting for nearly 41 per cent of the total lending balance compared to the 2005-end’s figure of VND42.17 trillion ($2.7 billion) and 47.6 per cent respectively at a time when commercial banks are worrying over liquidity of SOEs.

 

In performance reports in the first half, almost all commercial banks pointed out that their prime clients are private companies, particularly small and medium enterprises (SMEs) while no banks put their credit priorities on SOEs.

 

Only several years ago, SOEs were the prime clients of banks when the lending balance to SOEs made up 70-80 per cent of the total lending balance of state-run banks however since 2004 the situation has changed.

 

Amidst robust international integration, that SOEs have increasingly exposed their restrictions, weaknesses have made banks hesitant to consider lending to SOEs.

 

A recent credit analysis and categorization seminar conducted by the central bank’s Credit Information Center (CIC) in mid-April released some gloomy economic figures of 5,199 SOEs which had financial statements in 2004.

 

Namely, SOEs being graded good points from AAA to BBB accounted for 17.1 per cent in 2003 and 18 per cent in 2004 (foreign invested enterprises (FIEs) with good scores made up 44.1 per cent and 45.4 per cent and limited company and joint stock companies were 31.2-27.6 per cent). SOEs being ranked with average or bad scores of from BB to C accounted fro 55.9 per cent in 2003 and 54.6 per cent in 2004.  

 

According to CIC, state run firms are the most inefficiently-performing businesses. “SOEs owe banks much, have weak financial capacity, low profitability, high risks,” said CIC.

 

All theses led to high credit risks whereby many SOEs lose the trust of many banks. Although not turning away from SOEs, banks now cautiously consider lending to SOEs.

 

The Hanoi Housing Development Bank (Habubank) said that the bank is cautious to develop credit to SOEs because these state borrowers have no assets or insufficient assets to secure their bank loans.”

 

Banks trust can also be used as a tool to measure the efficiency of businesses by. That banks are hesitant to lend to SOEs should prompt stronger rearrangement and reform of the state run firms.