Promises of cheap credit prove hard to cash in on
Promises of cheap credit prove hard to cash in on
Firms are still struggling to access low-cost lending despite falling interest rates.
General director of state-owned Vietnam National Coffee Corporation (Vinacafe) Nguyen Nam Hai said up to 65 per cent of their coffee areas were planted with old trees that needed replacing, but member firms were short of capital but couldn’t take additional loans due to outstanding debts.
Therefore for Vinacafe and other coffee firms, lower interest rates were not of top importance, instead it was the ability to access capital.
Despite agriculture being a priority sector for lending, many agricultural export businesses claimed they could not access credit in the past year.
In response the Ministry of Agriculture and Rural Development’s Agro-Forestry Processing and Salt Industry Department recently proposed that banks reschedule loans for export processing firms, providing them a chance to get new loans at more reasonable interest rates of about 9 per cent per year.
The department also asked the government to cut the interest rate of investment development credit to 5-6 per cent per year from a current 11.5 per cent to benefit firms in the agricultural sector.
Vehicle and part manufacturers are also in a critical state.
In a recent letter to the prime minister, Bui Ngoc Huyen, chairman of leading Vietnamese car-maker Xuan Kien Auto Joint Stock Company (Vinaxuki) said capital shortages were the biggest problem firms were facing.
Kien said this was in part because banks had undervalued collateral.
Despite the State Bank’s (SBV) commitment to offer priority lending to firms in five set areas, its reports showed that the property sector had gained the most from bank loans, growing nearly 37 per cent last year.
That was because banks could hold property as collateral while they faced a surging threat of bad debt when lending to production firms.
According to Vietnam Association of Small and Medium Size Enterprises chairman Cao Si Kiem, current interest rates, although in a downward trend, have still nearly double the profitability rate of most firms.
SBV figures showed that bank credit in January had contracted 0.5 per cent. Some banks were in an even worse position. For instance, the Ho Chi Minh City-based Orient Commercial Bank (OCB) saw their credit contract 0.8 per cent in January. “Our bank only lent to good firms despite having substantial capital,” said OCB’s deputy general director Pham Linh.
Economists have indicated bank credit had been largely misdirected because of the concentration on consumer lending backed by collateral and into government bonds, rather than channelling money into production which was a real cause of concern.
The majority of government bonds were bought by banks, with the State Treasury raising over VND31.542 trillion ($150 million) from four auctions since early this year.
vir
