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What do businesses want? Electricity and capital
Feeling at the end of their tether, businesses have unanimously entreated the government for help, saying that if they do not have electricity and capital they will not be able to fulfill production and export plans for 2008.
Representatives of associations of footwear, garment, seafood and woodwork producers voiced the same complaint at an online conference to discuss measures to help enterprises settle difficulties late last week: the lack of capital and electricity has pushed them against the wall. They said that the goal of $61.2bil worth of exports could not be fulfilled if electricity cuts continued so regularly.
Explaining the electricity cuts, representative of the Electricity of Vietnam (EVN) Huynh Van Thanh said that 2,600 MW has not been integrated into the national grid due to technical problems of 750 MW Ca Mau 1 and Ca Mau 2, and 150 MW Nhon Trach power plants.
“Currently, EVN is managing and providing 60% of total electricity needed, while the other 40% must be purchased from non-EVN plants. Therefore, we cannot take the initiative in using electricity sources,” Thanh said.
However, Thanh’s explanation was not accepted by the Ministry of Industry and Trade Deputy Minister Bui Xuan Khu.
Khu said that EVN should not simply say ‘sorry’ to businesses for the electricity cuts, as the damages the electricity cuts have caused have been great.
Meanwhile, the representative of an export company complained that the limited loans from banks have been hindering businesses’ operations.
“The fact that thousands of containers are stuck at ports should be seen as a result of the regulation on banning export companies from borrowing capital in foreign currencies and the policy on tightening credit. As businesses cannot get capital, they do not have money to clear the imports,” he said.
Khu tried to appease businesses by promising to help them overcome their current difficulties. He said that the government has instructed the establishment of an inter-ministerial taskforce to supervise export activities responsible for helping settle businesses’ difficulties. The taskforce will gather once every 10 days to report to the government on the difficulties businesses are facing.
Banks sitting idle, businesses lacking capital
In an effort to fight inflation, the State Bank of Vietnam has decided that the credit growth rate in 2008 must not be higher than 30% compared to 2007. As a result, a lot of banks are now sitting idle as they cannot lend anymore, while businesses are thirsty for capital.
An official of Asia Commercial Bank (ACB) said that the bank has profuse capital to lend, and that the bank’s outstanding loans just account for a half of mobilised capital. However, the bank has to say ‘no’ to clients as its credit growth rate has nearly reached 30%.
Experts say that the State Bank has been too rigid and unreasonable in setting the maximum credit growth of 30% on all banks.
Some banks had very high percentages of outstanding loans in 2007 with the credit growth rate of up to 50% over 2006. If the banks have the credit growth of 30% in 2008 over 2007, the total amount of outstanding loans in 2008 will be very big.
Meanwhile, some other banks would have a low total of outstanding loans in 2008 if they did not lend much in 2007 and they also had to adhere to the 30% credit growth rate cap.
Tran Phuong Binh, General Director of East Asia Bank (EAB), said that the State Bank should also consider the high inflation when setting the credit growth limit. The high prices of commodities have led to the greater demand for capital. For example, previously, in order to buy one tonne of steel, enterprises needed VND8mil, while they now need VND20mil.
Slashing lending interest rates, how?
It is clear that the current lending interest rates are unaffordable for banks, and they need the support of the government to slash lending interest rates.
Experts said that the State Bank can help commercial banks cut capital mobilisation costs by paying more interest on compulsory reserve deposits.
In the current conditions, it proves to be impossible to lower deposit interest rates to reduce capital mobilisation costs, since the high inflation rate will make the deposits unprofitable, and keep people away from banks. Therefore, government assistance is necessary.
In the latest news, five commercial banks have announced lower lending interest rates.
VNN
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