The capital challenge for the import-export sector

Banks have endeavoured to provide preferential credit to the import-export sector, yet there is a need for improvement in the capital absorption capacity of businesses. Photo: Internet

Diverse solutions for support

Despite the ongoing challenges, Vietnam's import-export turnover has increased rapidly and reached 200% of GDP. However, according to experts, for the economy to truly benefit, it is essential to develop a robust domestic business community, enhance the value of export goods, and improve participation in global supply chains. According to a report from the Vietnam Chamber of Commerce and Industry (VCCI), nearly 60% of small and medium-sized enterprises lack funding for their production and business activities. Therefore, solutions regarding funding, capital allocation for import-export, and risk reduction in import-export activities are crucial.

Credit structure has shifted positively, focusing on capital allocation to production and business sectors, especially priority sectors, as directed by the Government. Import-export is among the five prioritized sectors. Hence, the banking and financial institutions have introduced various preferential programs and credit schemes specifically designed for import-export businesses, offering lower interest rates than conventional sectors.

For instance, the Vietnam Joint Stock Commercial Bank for Industry and Trade (VietinBank) is providing the VietinBank Trade Up commercial support program, offering a credit package of VND35,000 billion to assist key import-export enterprises with significant payment turnover, accessing short-term credit sources with interest rates starting from only 6.2% per annum for VND and from 3.5% for USD. The Agriculture and Rural Development Bank of Vietnam (Agribank) has recently launched a preferential credit program to support import-export customers with a scale of up to VND25,000 billion. The preferential interest rate is up to 1% per annum lower than the current lending rate of Agribank for each respective term.

Enterprises also noted that many credit institutions have partnered with financial technology companies (Fintech) to implement credit and financial support programs for the import-export sector. This has diversified capital access options, as conditions are more favourable than borrowing from banks, thereby helping businesses avoid external borrowing and potentially exploitative lending with exorbitant interest rates.

Especially given the need to diversify revenue sources from service activities, many banks have introduced effective financial solutions for import-export businesses. These solutions include international payment services with various financial options (such as letters of credit, guarantees, and remittances) and support services to mitigate exchange rate risks.

These solutions can be exemplified by the Bank for Investment and Development of Vietnam (BIDV) with its Trade Booming program that aids import-export enterprises in recovery by reducing commercial support service fees by 50% and international money transfer fees on the digital banking application designed for enterprises. The Maritime Bank (MSB) offers the Easy Trade solution exclusively for import-export businesses, reducing commercial support service fees by up to 30% and providing foreign exchange benefits.

Furthermore, many banks also emphasized that they have established a team of specialists to advise and accompany businesses in handling customs procedures, international payments, and more to facilitate import-export payments. These issues are increasingly necessary as the global currency market experiences constant fluctuations and payment risks when businesses actively seek and expand into new markets.

Must be accurate, relevant, and synchronized

The reality of the first months of 2023 showed that credit growth, in general, has remained low despite various directives to reduce lending rates and numerous credit incentive programs launched by banks. According to experts, the low credit growth is due to limit  ed capital absorption capacity, low demand for borrowing due to insufficient orders, narrowing production and business activities, and banks are also hesitant to lend due to concerns about repayment capability.

Therefore, merely introducing interest rate incentive programs or "calling for" credit growth is insufficient. Businesses believed that comprehensive and flexible solutions were necessary for the import-export sector to recover. One enterprise shared that businesses meeting the criteria for borrowing at lower-than-usual interest rates may still find it challenging to repay debts without orders and outlets. Thus, although the interest rates are low, businesses are not inclined to borrow.

Economic expert Dr. Cấn Văn Lực believed that legal frameworks must be refined to enhance capital access for import-export businesses. This includes allowing credit institutions to perform payment and discount-based lending based on outstanding amounts owed by businesses. Moreover, the Government should improve the legal framework for testing financial technology (Fintech) and peer-to-peer lending (P2P) while enhancing the effectiveness of credit guarantee funds for small and medium-sized enterprises and promoting comprehensive financial education for businesses and citizens.

According to businesses, the import-export sector often generates foreign exchange earnings and transparent revenue sources through LCs (Letters of Credit) and sales contracts. These can be used as collateral to secure funding.

Hence, support solutions need to be accurately assessed and tailored to the actual situation of businesses. For the import-export sector, apart from preferential credit sources, there's a need for support to utilize better signed Free Trade Agreements (FTAs), efficiently implement trade promotion, connect supply and demand, and diversify products and export markets. These solutions would help businesses generate revenue and new profits to repay debts. If these solutions are not implemented cohesively, credit flow might not be directed appropriately, making businesses unable to repay debts, which could increase non-performing loans for banks and significantly affect financial system security.

For businesses in the import-export sector and across various fields, diversifying funding sources is essential to avoid reliance solely on credit. Risk management needs to be strengthened, particularly financial risks, interest rates, exchange rates, and fraudulent activities related to import-export activities.