Businesses starved for capital

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VietStock FI English - 46 month(s) ago 4 readings

Capital is the most important issue to Vietnamese enterprises, particularly small- and medium-sized ones, a seminar in Ha Noi on capital solutions for businesses heard yesterday.

A survey by the Viet Nam Chamber of Commerce and Industry found the top priorities of businesses were all capital, said chamber chairman Vu Tien Loc. But while almost 75 per cent of companies tried to seek loans from commercial banks, only one-third had access to bank financing.

Participants all agreed high lending rates – which could reach 22-27 per cent per year at several banks (Plus other fees) – made businesses avoid borrowing. In addition, many SMEs often had difficulty meeting bank requirements on collateral or project feasibility criteria.

Dr Nguyen Thi Mui, Director of Vietinbank's Training and Human Resource Development Centre, said around 90 per cent of capital of credit institutions was borrowed from other organisations in the economy and deposits of enterprises had recently fallen by more than 19 per cent.

"Thus some banks offer higher deposit rates, leading to increasing interest rate base for borrowing," Mui said. She suggested the Government and the central bank support capital for banks and severely fine those violating the interest rate cap in order to reduce lending costs for business.

The chamber said that besides seeking bank loans, enterprises could mobilise capital through issuing stocks and bonds, purchasing goods on credit or joining hands with other companies.

However, though the stock market was considered an important channel for businesses to mobilise capital, massive issuances of shares could lead to oversupply on the market and, along with the prolonged downtrend recently, had made this channel less effective for raising capital.

Do Ngoc Quynh, General Secretary of the Viet Nam Bond Market Association, said that along with stocks, issuing corporate bonds also helped business mobilise capital efficiently.

"Corporate bonds can help enterprises secure a flexible and long-term capital source, enabling them to use capital actively," Quynh said, adding that if companies issued convertible bonds, they must pay low interest rates and bond issuers could avoid bank barriers when accessing credit.

Last year, around VND45 trillion (US$2.17 billion) worth of corporate bonds were issued successfully, higher than the VND30 trillion ($1.45 billion) of the previous year, which showed corporate bonds were workable for businesses, particularly those with feasible projects, Quynh said.

Viet Nam's bond market currently accounts for just 8-9 per cent of the nation's gross domestic product, which is very small compared with Japan, 200 per cent; Malaysia, 81 per cent; or China, 52.4 per cent.

However, to increase companies' abilities to raise capital through corporate bond issues, Quynh said companies, particularly SMEs, needed to improve capital efficiency, enhance management transparency and develop a habit of using professional consultancy for their underwriting.

He also suggested the establishment of a professional credit rating organisation for issuers.

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