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How to help businesses mobilise capital?
Capital is a key factor in maintaining and increasing the production and competitive capacity of businesses. Better access to capital sources will help businesses survive the current economic woes.
Businesses felt a pinch when the State Bank of Vietnam applied a tight monetary policy from late 2007 to September 2008. They still found it difficult to access bank loans even when the policy was loosened in December 2008.
According to a recent survey conducted by the Vietnam Chamber of Commerce and Industry, 74.47 percent of businesses said that banks are their main channel to mobilise capital. However, when the monetary policy was loosened, businesses still complained about difficulties, not just because they could not pay back their old debts, but commercial banks shied away from disbursing loans for fear that the global economic crisis would get worse. In this scenario, there was a danger that more businesses would go bankrupt and banks would not receive repayment of their loans.
Therefore, the commercial banks tightened lending conditions and required longer appraising time to ensure that businesses would be able to pay back their debts. Many businesses select management via ‘nepotism’, leading to low professional skills. In addition, obsolete technology, unfeasible business plans and non-transparent financial reporting make it difficult for them to access loans.
The stock market is the second most used capital channel for businesses. Yet, the current downward trend of the market has depleted capital reserves and muddied the image of some enterprises.
What’s more, businesses that have a great deal of goods in stock do not dare to take out loans for fear that they might default and lose their assets.
Experts say that besides creating favourable conditions for businesses, the government should increase trade promotion, support businesses in seeking new markets and implement solutions to stimulate market consumption.
According to PhD. Tran Thi Thanh Tu from the Vietnam Development Forum, banks must be more active and flexible. She points to the fact that the Government has recently approved a 4-percent interest rate subsidy programme for businesses in difficulty, but banks have been carrying out the programme unevenly.
“Big commercial banks, mostly State-owned, have promptly gone ahead with the programme, while smaller banks have hesitated to disburse loans, reasoning that they could not monitor their use,” says Ms Tu. “Any government policy to regulate the economy has adverse side-effects. The crux of the matter is that banks must be active and flexible in their management to minimize these effects.”
PhD. Nguyen Dai Lai from the State Bank of Vietnam says, “The economy will continue to deteriorate unless we stimulate consumer spending and invest in products and services with existing outlets. In the current context, banks should focus on the interests of the national economy and their clients, rather than the stock market, while tightening oversight of their own operations.”
The PM has decided to use VND17,000 billion of the economic stimulus package to subsidise interest rates for businesses. Once the amount is disbursed, total outstanding debt will reach VND620,000 billion, making up 35.4 percent of the economy’s total.
“Banks should seize this golden chance to help businesses to survive the economic slowdown and increase the scale of production,” says Mr Lai.
PhD. Pham Tien Thanh from the Vietnam Industrial and Commercial Bank says that apart from banks, businesses can mobilise loans from other channels, for example, by issuing enterprise bonds, from their employees and clients and via joint ventures with domestic and foreign partners. Among these channels, mobilising capital from bonds will help businesses to generate capital for production, rev up the domestic capital market, ease the burden on the banking system for mid- and long-term loans, and minimise potential risks for the financial system.
Meanwhile, MA Nguyen Manh Hung from the army-run Telecommunications Corporation suggests that the commercial banks should restructure debts or delay and extend the deadlines for debts for businesses in difficulty. In addition, they should accelerate administrative reforms and crack down on dubious lending practices.
“For businesses, I think they should invest in key areas, draw up realistic business plans and seek loans from sources other than banks,” says Mr Hung.
VietNamNet/VOV
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