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More businesses need subsidised loans
Over the past two months, few businesses have taken out subsidised loans from commercial banks to maintain production and outlets for their products. Economic experts fear that it will be difficult for banks to disburse US$1 billion at the subsidised rate for 8 months as scheduled.
Identifying difficulties
The Government maintains that it will pay back 80 percent of the interest on subsidised loans to banks by the end of 2009 and the remainder at later time as soon as it receives financial reports from the banks.
The government has recently approved a 4-percent interest rate subsidy programme for businesses to help them maintain production. However, businesses are unhappy with a range of subsidised loans offered by commercial banks because major markets for their export staples such as garments, footwear, furniture and coffee are shrinking as a consequence of the global economic crisis. They are concerned that they will be burdened with mounting debts while trying to seek outlets for their products. In addition, they have to risk being subject to considerable fluctuations in the foreign currency market, since commercial banks only disburse loans in Vietnamese Dong (VND).
Currently, small- and medium-sized enterprises (SMEs) make up more than 90 percent of all businesses in Vietnam. Yet, they still find it difficult to access subsidised loans due to legal constraints relating to the mortgaging of assets.
Under the programme, subsidised loans are only disbursed to businesses that have proven to operate profitably and have healthy financial reports. They are not applicable to those which are in difficulty or cannot pay back their debts. But, in fact it is only the loss-making businesses that need financial assistance.
MA Tran Thi Thanh Tu from the Vietnam Development Forum (VDF) says that unless measures are put in place, subsidised loans will not be disbursed to needy businesses. She explains that it normally takes banks considerable time to appraise the dossiers of borrowers and few businesses will actually receive loans within the 8 month period.
The Government maintains that it will pay back 80 percent of the interest on subsidised loans to banks by the end of 2009 and the remainder at later time as soon as it receives financial reports from the banks. However, banks fear that the government will deduct this remaining 20 percent from taxes that banks have to pay to the State.
Dr. Dang Ngoc Duc from Hanoi’s National Economics University, says that the State Bank of Vietnam should amend regulations to allow commercial banks to grant marginal loans and use capital from the credit risk reserve fund to buy enterprises’ bad debts. The goal of this would be to tackle overdue debts to help businesses surmount the difficulties they face and ease the financial burden on banks.
He also says that the central bank should sharpen its management skills by increasing the self-finance capacity of commercial banks, allowing them to develop financial services for businesses.
According to Mr Duc, to better manage loans, banks can counsel businesses financial management and capital investment skills and work with technology centres to support businesses in developing technology and exploring customers’ tastes and overseas markets.
Stimulating market demand
Under the programme, the Government only subsidises interest rates for loans from commercial banks and the central credit fund. Loans from grassroots-level people’s credit funds and social policy banks are not subject to subsidy. This means that a large number of businesses and households will move to take out loans from commercial banks instead of other credit organisations to enjoy the interest rate subsidy. This will result in additional fees and cause difficulties for credit organisations.
The government says that this subsidy programme will only be applied to businesses, households and individuals that borrow capital to invest in production.
Many economic experts say that by offering the subsidy, the government seems to be focused on stimulating production rather than consumption. Meanwhile, to operate and grow, businesses need outlets for their products, not simply bank loans. Therefore, they say the subsidy programme will prove effective only when market demand is also stimulated. They suggest that the government can stimulate market demand by encouraging consumers to buy products on a deferred payment plan to strengthen links between banks, businesses and consumers.
Due to the impact of the global economic crisis, laid-off workers tend to return to their homes in the countryside and it is necessary to stimulate market demand in rural areas. If rural households access loans from social policy banks, more than 70 percent of the country’s consumers would constitute a huge market, helping to generate jobs and develop production in the countryside.
Dr. Nguyen Dac Hung, an official from the State Bank of Vietnam, says that the subsidy programme should be applied to all types of credit organisations and be expanded to more businesses.
VietNamNet, VOV
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