Capital shortage badly affecting companies

Capital shortage coupled with hard to find bank loans have forced many enterprises to narrow business operations and make employees redundant.
Some 20 percent of the total enterprises are estimated to go bankrupt, another 60 percent has experienced revenue reduction and layoff and the remainder has encountered plenty of difficulties, according to the Vietnam Association of small and medium-sized enterprises.

What is challenging now is where to seek capital for business and production given the currently surging interest rates and restriction on loaning particularly for mid-term and long-term.

The agency’s report on the implementation of Resolution 11 also reveals a modest amount of enterprises that could approach bank credit. In Quang Binh province, for instance, merely 30 percent of the total businesses could take out bank loans with prevailing negotiable interest rates of as much as 20pct and long-term rates of 25pct.

In addition, the survey on implications of significant changes on enterprises and labourers conducted by the Centre for Analysis and Forecast, Vietnam Academy of Social Sciences also pointed out signals of credit instability.

Specifically, lending policies for bolstering exporting and credit trust at branches of Vietnam Development Bank have failed to bring remarkable changes. It is high-sky interest rates together with short tenor that have dealt a blow to businesses.

What is more, increasingly high input expenses such as electricity, petrol, materials and the like have further added pressures to the current thirst for capital.

Slow consumption by reason of spending tightening in the context of galloping inflation has driven up stockpiles, thus leading to fund shortage for capital turnaround, many garment and textile companies said.

Still, most of them would rather leave stocks piling up, cut down on profits and lay off employees than take out loans at sky-high interest rates for salary payment which has hiked 20pct.

Construction industry appears to have been worst affected with 25 projects extended due to capital shortage, around 1,118 workers made redundant in the first half of the year.

What is noteworthy is that some 66 businesses’ salary payment with the amount totalling 134 billion dong is currently overdue and another 79 have yet paid social insurance amount of 85 billion dong.

It is revealed that the actual lending rates are still hovering between 21pct and 27pct in spite of emerging signals of interest rate cuts in early September. As a result, many that had difficulty paying salary finally resorted to hot loans with interest rates of 6pct-9pct p.a higher.

Also, the hardship has touched agricultural enterprises and small business enterprises.

Although the Decision 41 has bolstered agricultural and rural development in that mortgaging is not required for loaning given the feasible business plans, cooperatives have still taken out collateral loans even after one year of the issuance, according to a fertiliser manufacturer.

Moreover, the amount of credit granted which is normally on short term to this sector is limited with municipal agricultural banks meeting 20pct of
the demand and banks for social policies 1.13pct. – Source: Vietbiz24.com

Tags: Vietnam banking industry, Vietnam finance, Vietnam financial