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Experts disagree over high interest rate impacts
Experts at a conference on investment channels held in Ho Chi Minh City on Thursday differed over the impacts of high interest rates on enterprises, as some said the high cost of capital was driving local firms to bankruptcy and while others fiercely disagreed.
The announced topic of the conference on identifying investment opportunities for 2011-2012 was brushed aside as the debate over high interest rates, and macro uncertainties, took center stage.
Le Xuan Nghia, Vice Chairman of the National Financial Supervisory Committee, told the meeting that fighting inflation is a long-term target, and the government must not unwind the policy after just a few months to avoid flip-flop policies.
Nghia said in the first six months this year, money supply increased by about 3 percent, or VND78 trillion.
However, half of the money supply went to investment in government bonds with most of the buyers being commercial banks, and only half came out as credits. This has led to a shortage in Vietnam dong, pushing interest rates up.
Enterprises in hot water
Nghia said enterprises were really locked in a difficult situation. According to a survey of his committee, 100 enterprises including exporters are having big stockpiles while 130 listed firms reveal very bad cash flows. “If monetary policies are still tightened as they are now, the situation will mount to stagflation, and GDP growth in the third and fourth quarter would be lower than 5 percent, not 6-6.5 percent as expected by the government,” Nghia told the conference.
The expert said measures should be taken to lower the interest rates as a lifeline for local enterprises, given better conditions now. He cited reasons for cutting interest rates such as falling government bond’s rate and inter-bank rate, though the cut will not be deep.
Meanwhile, Nguyen Duc Vinh, CEO of Techcombank, said that high interest rates were just another factor aggravating the woes for local enterprises.
As a practitioner in accessing enterprises as corporate borrowers, Vinh said many local enterprises were not using loans in a wise manner, piling pressure on themselves when interest rates went up.
Techcombank now serves 50,000 enterprises but only 10 -15 percent of them have frequent transactions with the bank.
The bank has gathered statistics on their clients, and found out that 70 percent of the enterprises are having difficulties now, with nearly one-third of them mired in a tough situation that must be placed under the bank’s special surveillance.
However, Vinh said, “the high interest rates are just one reason making enterprises’ situation worsen. The basic reason is the imbalance and lack of concentration in enterprises’ operations.” “Private companies usually have equity over total operating capital at 15-20 percent while the ratio at state-owned companies is less than 10 percent ,” Vinh said. Meanwhile, over 60 percent of the enterprises use a lot of short-term capital for long-term investments, and most of them invest capital in the real estate sector, he said.
Enterprises are using only around 60 percent of borrowed capital for their core business, and when their non-core business activity does not pay off, the core business will bear all of the burden of interests, meaning the real interest rate is 30 percent in the case of a nominal interest rate of 20 percent, Vinh explained.
The other voice
Vo Tri Thanh, Deputy Head of the Central Institute for Economic Management (CIEM), vehemently denied high interest rates as the root cause for difficulties cornering enterprises now. “Looking at macro indicators in the first six months this year, I think enterprises’ pronounced difficulty is a bit exaggerated,” Thanh said.
Gross Domestic Product still rose 5.6% in the first six months, while import still increased by a double-digit rate, he said, and these proved that people still invested and consumed, he said.
He added that enterprises still maintained their manufacturing activity, as evidenced by industrial output growth of 14.3% in the year’s first half.
If credit growth this year increases by 20% as endorsed by the central bank, the real number will be US$25 billion. “If money is not poured into real estate and the stock market, can the real economy of Vietnam absorb this huge amount of capital?” he raised the question.
Thanh said interest rate would be still high as the country was making efforts to curb inflation. “However, I think enterprises still can survive in the next four months,” he said.
tuoitrenews, TBKTSG
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