How to inject credit into the economy

Enterprises lack working capital

According to Mr. Vu Cong Huan, Director of HDC Corporation, a local seafood import-export and distribution organization, the export section of enterprises is experiencing major challenges, with orders falling by 25-27%. Companies in the domestic market lack capital to make goods, despite a 30-35% fall in input material prices compared to the first six months of the previous year.

According to Mr. Huan, HDC has access to three banks with a total credit capacity of roughly 80 billion VND. The unsecured credit ceiling, however, is only approximately 8-10 billion VND, and the remainder requires collateral as security.

Even if their financial reporting and cash flow are good, it is difficult for small and medium-sized firms (SMEs) like HDC to achieve these standards. Larger clients, such as Vingroup, Massan, or Lotte, always pay on time and never pay more than 5 days late. However, banks have established a maximum limit  of just 3-5 billion VND for unsecured loans to SMEs, implying that the total credit they may acquire from three banks is roughly 10 billion VND.

Mr. Tran Long, Deputy General Director of BIDV bank, noted that loan growth for the whole banking sector in the first six months of the year was only 4.73%, which is quite low when compared to both the 2018-2022 period and the same time in 2020.

According to BIDV research and numerous experts, the key causes for this are both objective and subjective, including a definite reduction in orders and outputs, which leads to less viable business plans and investment projects.

"A current issue with SMEs is their private ownership, and their management capacity is insufficient." As a result, banks find it difficult to appropriately estimate their capabilities and cash flow. Furthermore, an organization may have agreements with many credit institutions, making it difficult for banks to manage cash flow. To accomplish the end aim, we need open dialogues about how to improve firms' legal awareness and share the rewards and risks," said Mr. Long.

Appropriate policy changes

Analyzing the current access to and absorption of capital by enterprises, Associate Professor Dr. Nguyen Thi Mui, a member of the National Financial and Monetary Policy Advisory Council, believes that in the current difficult context, both domestic and international consumer demand is declining significantly.

The causes are complex, involving both objective and subjective factors: To begin, lower orders, imports, manufacturing, company, and revenue have resulted in high inventory levels, which have unavoidably impacted credit demand.

Second, after a bank has obtained money, it must lend it out, but growing credit is difficult since finding reputable firms and evaluating their cash flow is difficult. Companies still want more interest rate cuts, but the problem is that banks have just hiked deposit interest rates, making it impossible to alter lending rates rapidly.

Furthermore, companies want streamlined procedures, but they must adhere to the idea that both the borrower and the lender have responsibility so that new loans are not unduly difficult.

Third, associated government agencies and departments concerned with economic credit concur that while certain ministries and sectors have previously engaged in creating measures to help enterprises, the impact on bank credit has been delayed.

According to Dr. Nguyen Thi Mui, the fundamental difficulty for many businesses today is a lack of trust and the inability to demonstrate that they would be able to return the principal and interest after borrowing. As a result, if the government intends to significantly encourage credit, some components of its policies must be changed. For example, establishing a loan guarantee fund for SMEs (which, while been suggested and changed several times, has yet to be implemented). As Dr. Mui noted, cheap or poor credit involves large risks, therefore if the government wants to push credit, it must adjust some legislative features while banks continue to adhere to principles and fulfill their social obligation and depositor responsibility.