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Saving up every VND to survive the interest rate storm
Reducing lighting hours, limiting phone calls, avoiding using electricity in peak hours, cutting air-conditioning hours, using waste to save materials, enterprises are doing all the things they can to practice frugality.
Businesses stop borrowing, banks stop lending
Every year, Hong Phuc food enterprise borrows VND3-5bil from banks. It has recently thought of expanding the production scale, intending to borrow several dozen billion VND to implement the project.
However, the project has been canceled as banks have raised lending interest rates as of May 19. Hanh Phuc has decided to cancel the project. It has also decided not to seek working capital from banks any more.
Financial experts have foreseen that there may be a new wave of small enterprises giving up on banks. The enterprises, like Hanh Phuc, will either to seek capital from other sources, or narrow their production scale.
Nguyen Thanh Chanh, Director of Saigon Fuel Joint Stock Company, related that previously, when the crude oil price was just several tens of dollars a barrel and the bank interest rate was at 10-12% per annum, sale agents and distributors could get VND300-500/litre of commission. Nowadays, when the crude oil price stays high at $128/barrel, and sales agents have to borrow money from banks at 18% per annum, the commission rate remains unchanged, which results in the low profit rate on capital.
Vo Truong Thanh, Chairman of Truong Thanh Woodwork Technology Group, complained that the DO oil price increases have made the shipment fees increase sharply. Meanwhile, the company has to import timber materials from far away countries, including Brazil. The transport fees now accounts for 40% of the sale price of every woodwork product unit.
Le Van Nam, Chairman of Hanh Phuc Enterprise, said that companies could not afford such high interest rates as now offered by banks. The maximum lending interest rate has been set at 18% per annum, but the actual interest rates may reach 22-23% per annum, as banks collect additional ‘management fees’ for the loans.
Financial reports of enterprises show that most production enterprises have the ratio of profit on capital at 25-30% per annum. As they have to pay 22-23% of the profit for bank loans interests, the net profit would be 5-7% per annum, with which enterprises become unpaid workers.
Cutting all unnecessary expenses
Chanh said that when the difficulties are coming from all sides, enterprises have only once choice: saving every VND.
However, Le Thuc Hoai, Deputy General Director of Thai Tuan Textile and Garment Company, said that as the prices have been increasing for years, the company has been using all possible measures to save costs; therefore, it is not so easy to find new measures.
Hoai said that Thai Tuan has spent money to install the electrical equipment which allows lower electricity consumption levels. The high electricity consuming lamps have been replaced by the economical electricity lamps. Meanwhile, unnecessary management fees have been cut.
At Truong Thanh Company, the electricity peak using hours have become the break time for workers. Air conditioners are turned on at 9 am and turned off at 4 pm, kept at 27oC instead of 25oC.
The company has been trying to import high capacity equipment, which allows them to reduce the electricity consumption and ensure high capacity as well.
LAN networks are being used within the company, while E-conference and e-mail are being used for staff to discuss work. Phone callers have to prepare the content of the phone calls in advance in order to shorten the phone calls. Previously, the company had four cars, now it uses two only, while leaders of the companies share cars. Papers, which were printed on one side, now are printed in both sides.
However, the expenses for workers’ meals have been raised in order to ensure the production capacity. The company now spends VND8,000 for lunch of every worker, and VND9,000 for managers.
Most of new investment projects have also been stopped in order to save costs in the context of a price storm.
VNN
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